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Researcher warns on loan 'bubbles'

CHINA should be cautious about "asset price bubbles" when parts of the fast expanding bank loans are channeled into the stock and property markets and shore up their prices, said Wei Jianing, a senior researcher at the State Council Development and Research Center.

"The current model of bank lending makes it easy to create new asset price bubbles. It has shown signs of them," Wei said today in the Shanghai Securities News.

"The surge of credit is circulating within the financial sector, raising share prices and land prices."

Wei said nearly half of China's new liquidity was circulating within the financial system instead of supporting growth in the real economy.

China's new yuan-backed loans extended to 5.84 trillion yuan (US$855 billion) in the first five months of this year, more than the total lending last year and already exceeding the 2009 minimum target of 5 trillion yuan.

Market sources said new loans in June may surpass 1 trillion yuan, keeping the momentum of fast expansion after China adopted a relatively loose monetary policy to counter the global financial crisis.

The China Banking Regulatory Commission last week reinforced a former decision that bank loans should be channeled to sectors that really help the real economy, instead of being invested in stock and property.

The banking regulator also told banks to avoid sudden loan surges at the month-end and quarter-end, which usually sees a boost of lending in order to meet internal targets. It said the phenomenon may intensify this year when banks tried to answer the government's call for more loans to boost the economy.

Cheng Siwei, a noted economist and former vice chairman of the standing committee of the National People's Congress, also had similar concerns.

"Part of the new loans in the first quarter have undeniably been channeled into the equity and property markets, that's one of the reasons for the warming up of the markets," Cheng said at a financial forum in Ningbo, Zhejiang Province, over the weekend.

Cheng said the surging loans would have some negative influence over the economy by creating bubbles, and the government-backed investments may be unable to stimulate consumer demand in a "sustaining" way.

But Cheng remained positive on China's economic growth and expected it to expand 8 percent this year and recover to grow 9 percent in 2011.


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