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August 1, 2009

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Expert call: Yuan loans set to dive

Financial experts in China expect new yuan loans to fall sharply in July and during the rest of the year from the 1.53 trillion yuan (US$224 billion) in June.

Their predictions came after the nation's central bank said it may fine-tune its moderately loose policy stance and closely monitor loan levels.

China's new lending in July may be less than 500 billion yuan, a plunge from June but still "abundant" compared with average levels in recent years, Shanghai Securities News said in a report on its front page yesterday, citing anonymous sources in the financial industry.

Andy Xie, a former Morgan Stanley chief Asian economist and now an independent economist, said growth in China's new loans may be cut by half to about 15 percent in the second half of this year.

China's banks granted a record 7.37 trillion yuan in new yuan loans in the first six months, an increase of 4.9 trillion yuan from a year earlier.

This has already surpassed the central government's target for this year of "at least 5 trillion yuan."

Xinhua news agency yesterday cited an unnamed official with the People's Bank of China as saying that the central bank may fine-tune its moderately loose monetary policy stance to more reflect the country's economic growth and consumer prices.

"China should stick to its monetary policy, but the level of the looseness may be tightened a bit after the market loses liquidity," said Lin Songli, a Guosen Securities Co analyst.

He said the July new loans might withdraw dramatically to below 300 billion yuan.

Cheng Manjiang, an analyst at BOC International (China) Ltd, said policy makers were torn between two issues.

"The authorities on one hand are under pressure to bolster economic growth but on the other are worried about inflation," Cheng said.

Traces of smaller new lending in coming months can also be found in individual banks' loan plans.

The Industrial and Commercial Bank of China and China Construction Bank, the country's two largest banks by assets, aim to restrict their new loans to 200 billion yuan in the second half, according to the 21st Century Business Herald newspaper.

ICBC extended 825.5 billion yuan of new loans and CCB issued 709 billion yuan in the first half.


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