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September 3, 2009

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Home » Business » Finance

Gradual cut in credit to sustain growth

China should be selective on granting new yuan loans instead of curbing credit too quickly, said a senior official at the Development Research Center under the State Council, China's Cabinet.
"The credit supply should be reduced in a gradual way," Chen Daofu, director of the center's Research Institute of Finance, was quoted as saying by the China Securities Journal yesterday.
"If the government squeezes credit too quickly and suddenly strengthens oversight of loan management, it would hurt the foundation for economic recovery and dampen private investment," Chen said.
China's new yuan lending may have totaled 320 billion yuan (US$46.8 billion) last month, lower than a previous market expectation of 500 billion yuan, the Journal said on Tuesday.
In July, new yuan loans hit a nine-month low of 356 billion yuan, in sharp contrast with the 1.53 trillion yuan in June as banks slowed their credit growth amid rising concerns of asset bubbles. In the first seven months, Chinese banks lent a record 7.73 trillion yuan of loans, a jump of 173 percent from a year ago. Economists had called for a curb on runaway loans because of mounting concerns that nearly one third of the loans have been channeled into stocks and real estate.
The credit cut in the past two months has led to wide fluctuations in the equity markets. On Monday, Shanghai shares fell 6.74 percent - the most in 14 months - after media reports said bank lending continued to shrink. The Shanghai Composite Index has lost 23 percent from its peak on August 4 on worries about the curb on loans.
Wu Xiaoling, former vice governor of the central bank, had advised against too sharp changes in credit growth. Efforts should be made to adjust the loan structure and channel funds into the real economy, Wu said.


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