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December 12, 2009

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Likely fall in new lending in 2010

Banks in China issued 294.8 billion yuan (US$43.2 billion) of new yuan loans in November, more than expected, according to the People's Bank of China, but an economist said loan growth is set to drop next year.

The lenders issued 253 billion yuan in October, the central bank said on its Website yesterday.

M2, the broadest measure of money supply and includes deposits and cash, grew a record 29.74 percent from a year ago at the end of November.

"China's new yuan growth is set to drop in 2010 as this year's credit growth is not sustainable," said Liao Qun, chief economist at Citic Ka Wah Bank.

Economists said they expect China's new yuan loans to top 9.5 trillion yuan this year and drop to about 8 trillion yuan next year as a sharp fall is unlikely as the government will continue with the proactive fiscal and moderately loose monetary policy in 2010 to consolidate economic growth. China's new yuan loans totaled 4.9 trillion yuan in 2008.

Lu Zhengwei, a senior economist at the Industrial Bank, said the surprisingly bigger November new loans may be due to lending by rural commercial banks and rural cooperatives as big banks have already halted extending massive loans.

"The rural financial institutions are likely to be the wild card in December still as they can ride on the central government's support to grow the rural economy and small businesses," Lu said.

In the first 11 months, banks have issued 9.21 trillion yuan of local-currency loans, up 5.06 trillion yuan a year ago. Loans have already surpassed the 5-trillion-yuan target for 2009 set at the beginning of this year.

Liao said China's money supply is expected to grow 20 percent next year and the central bank may raise interest rates twice from the second quarter of next year. Lu expects the central bank to rely more on quantitative measures such as reserve ratio requirement and there would be at most one interest rate increase of 0.27 percentage point in 2010.


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