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August 12, 2009

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New yuan loans reach 9-month low

NEW yuan lending hit a nine-month low in China last month as banks took a step back and slowed their credit growth amid rising concerns of asset bubbles forming, central bank figures showed yesterday.

Banks in China extended 356 billion yuan (US$52 billion) of yuan-denominated loans last month, a sharp fall from the 1.53 trillion yuan in June, the People's Bank of China said yesterday.

Meanwhile, M2, the broadest measure of money supply, jumped 28.4 percent last month.

"Lending slowed in line with expectations," said Sherman Chan, a Moody's economist. "Lending is expected to lose a bit of steam because the momentum during the first half is simply unsustainable."

Morgan Stanley said the slowdown in July credit can't be interpreted as a tightening but should be seen as a normalization in monetary expansion toward a more sustainable level.

The July loan figure was one-third of the monthly average of new yuan loans in the first seven months of this year.

Banks lent 7.73 trillion yuan of yuan-denominated loans in the period, a jump of 173 percent from a year ago. It has already surpassed the 5-trillion-yuan target for this year that was set at the year's beginning.

"One area that banks may pay more attention to is the risk of bad debts forming," Chan said.

Meanwhile, yuan deposits rose 28.5 percent, or 399.3 billion yuan, last month, a slight dip from a growth of 29 percent in June.

The record high credit has ignited concerns that the flood of liquidity has fueled China's stock and real estate sectors. The benchmark Shanghai Composite Index has surged about 80 percent this year while other major global stock markets are struggling. Property prices in China's 70 major cities rose 1 percent year on year last month, 0.8 percentage point higher than in June.

As people took capital out of bank accounts to invest in the bullish stock and property markets, there was a fall of 19.2 billion yuan in personal savings last month.

Su Ning, deputy governor of the central bank, last week said the central bank won't use quantitative control measures to cap credit.

Authorities have taken measures, rather than shifting monetary policy, to mop up excess liquidity. Moves include resuming initial public offerings after a 10-month hiatus and the issuing of treasury bills after a short suspension.


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