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November 12, 2009

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Credit growth on the wane

CHINA'S new yuan loans last month grew by the smallest amount in a year as banks tightened credit terms, the central bank said yesterday.

Banks in China extended 253 billion yuan (US$37 billion) of new yuan loans last month, compared with 516.7 billion yuan in September, the People's Bank of China said on its Website.

M2, the broadest measure of money supply, expanded by a record 29.4 percent from a year ago, meeting most expectations. M2, which includes deposits and cash, rose 29.31 in September.

New credit last month was the lowest since November last year when China shifted to a relaxed monetary policy.

"October new yuan loans were much lower than the 370 billion yuan market consensus," Ken Peng, a Citi economist, said yesterday. "Still, at 253 billion yuan, credit conditions are not tight."

In the first 10 months, banks issued 8.92 trillion yuan worth of domestic-currency loans, up 5.26 trillion yuan from a year ago. The figure has already surpassed the 5 trillion yuan target for 2009 set at the beginning of this year.

The tide of new credit has pumped up China's economic growth in the face of the global slowdown, but it also has triggered fears of asset price bubbles as some loan proceeds have been sneaked into the stock and real estate markets.

Economists said they expect the current macro policy to continue into early next year and that mild loan guidance and a shift in official rhetoric may come later next year, when China's economic recovery matures and global conditions stabilize.

There was no consensus on the exact timing of a possible shift to economic tightening, but most analysts agreed that China's rapid loan growth this year can't be sustained.

Standard Chartered Bank said it expects broadening of sector-specific loan guidance and stronger enforcement on existing rules.

The China Banking Regulatory Commission said on October 28 that it will require personal loans exceeding 300,000 yuan to be given directly to the counterparty of the borrower, rather than the borrower, to limit speculation. And banks have begun to tighten rules for mortgage lending.

Indeed, the growth of individual mortgage loans in Shanghai slowed in October, the local headquarters of the central bank said yesterday. Those loans grew 9.16 billion yuan, down 5.18 billion yuan from a month ago.


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