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New loans may double target for this year

CHINA'S new loans this year could easily top 10 trillion yuan (US$1.46 trillion), doubling the year's target, if new lending continues its momentum last month, economists said yesterday.

Economists expect the current loose monetary policy stance to be changed to neutral although some have called for tightening credit to avoid asset price bubbles and a new wave of bad loans.

New yuan lending more than doubled last month to 1.53 trillion yuan from May's 591.8 billion yuan. It was close to the 1.6 trillion yuan monthly average in new credit in the first quarter when credit posted a record high.

New credit mounted to 7.37 trillion yuan in the first half.

"Credit growth may have increased faster than desired," Sherman Chan, a Moody's economist, said yesterday. "Concerns about credit growth getting out of control in China are intensifying."

Chan said policy makers need to closely monitor credit growth to avoid the emergence of downside risks.

"The most important task for banking authorities now is to ensure lending practices remain prudent despite the urge felt by commercial banks in assisting struggling businesses," Chan said.

Last month, banks received 2 trillion yuan in new deposits, up from May's 1.33 trillion yuan. Economists said some of the deposits could be funds borrowed at relatively low costs.

As investor sentiment continues to improve, idle funds may find their way into the stock and real estate markets, creating asset price bubbles, Chan said.

The yuan-backed A-share market is the best performer in the world this year, with the benchmark Shanghai Composite Index rising 72 percent.

Ken Peng, a Citibank China economist, said rapid credit expansion, together with inflation and other data last month, may speed up the change in monetary policy stance.

"Banks will always lend more when future tightening becomes more likely," Peng said. "It's difficult to imagine banks would voluntarily migrate to a slower pace."

He said a more neutral stance is now appropriate.


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