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China's bank loans post record rise

NEW yuan-denominated loans in China rose by a record 1.62 trillion yuan (US$237 billion) in January, and the money supply expanded by the fastest pace in more than a year, pushed by the state's economic stimulus efforts, the central bank said yesterday.

The outstanding value of yuan loans rose 21.3 percent year on year to 31.9 trillion yuan at the end of January, the People's Bank of China said yesterday. M2, the broadest measure of money supply, climbed 18.8 percent from a year earlier.

In comparison, banks wrote 772 billion yuan worth of loans in December, while M2, which includes cash and all deposits, gained 17.8 percent.

The loan growth came as Chinese banks followed the government's call to support the economy by granting more credit. The central government also announced a 4-trillion-yuan spending package in November under its comprehensive effort to spur flagging economic growth.

"On the monetary front, 2009 kicked off on a positive note for China, with M2 growth comfortably above the government's target of 17 percent for the year," Sherman Chan, a Moody's economist, said in a note yesterday. "The surge in loans was stunning, as new credit was equivalent to 40 percent of the value of the fiscal stimulus plan."

Su Ning, the vice government of the central bank, said last week that China may be "the first to recover" from global recession, pointing to the strong credit growth and other positive economic indicators.

The People's Bank of China has cut interest rates five times since September as the fallout from the global economic downturn hit home. The central bank also trimmed banks' reserve requirements four times and scrapped the lending quota to promote liquidity.

But low-risk commercial-bill financing accounted for 39 percent of the new yuan lending in January, showing that banks are still somewhat reluctant to lend, said Lu Zhengwei, the Industrial Bank's chief economist.

Ken Peng, a Citibank economist, agreed that longer-time financing deals would do a better job of boosting the economy.

"The bill financing was the largest driver of credit growth and is not conducive to easing broad credit conditions or boosting demand," Peng said. Commercial bills are used by companies to cover short-term financing needs.

Economists also cautioned that banks may be exposed to higher risks if the rising loan value is coupled with declining loan quality.

"There are signs of risks for the years ahead, as bad debt may surge if loans are granted simply for the sake of boosting growth and the assessment process is lax," Chan said.

Meanwhile, there were new signs that any early optimism may be misplaced.

Both household and corporate deposits rose last month, indicating that individuals are still reluctant to consume while companies continue to cut back on investment under a grim business outlook.


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