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September 12, 2009

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New yuan loans rise as banks inject money

CHINA'S new yuan lending unexpectedly picked up last month as banks kept pumping money into the economy to fuel growth, easing investor concerns of a tightening of credit.

Banks extended 410.4 billion yuan (US$60.1 billion) of yuan-denominated credit last month, up from July's 355.9 billion yuan, the People's Bank of China, the central bank, said yesterday.

"August credit exceeded market expectations of credit dropping to 320 billion yuan," said Lu Zhengwei, Industrial Bank's senior economist. "However, the growth is still rational, driven by a rise in short-term loans from smaller banks."

Smaller banks and overseas institutions sought to shore up their market shares while state-owned lenders slowed their lending after China reported a record credit of 7.37 trillion yuan in the first half.

The robust lending not only fueled economic growth but also buoyed China's real estate and stock markets, raising fears that authorities might decide to rein in capital flows.

"The financial market sentiment is influenced by concerns about liquidity tightening and by rumors that circulated ahead of the release of monthly credit data," said Lu. "August figures eased those concerns for the moment."

The benchmark Shanghai Composite Index rose 2.22 percent to end at 2,989.79 yesterday.

The gauge tumbled 28 percent last month when a drop in July credit figures led to speculation that tightening was under way.

In the first eight months of this year, new yuan lending surged 262 percent to 8.15 trillion yuan. That exceeded the government's 2009 target of 5 trillion yuan in new yuan lending.

Economists now expect this year's lending to top 10 trillion yuan.

Ma Jun, Deutsche Bank's chief economist in China, said he expects average monthly loan growth of 400 billion yuan for the remainder of the year, down from an average 1.2 trillion yuan in the first half.

Premier Wen Jiabao said on Thursday that China will keep its moderately loose monetary policy and fully implement its stimulus package because the country's economic recovery is still not stable.

China won't change its policies under improper conditions, Wen said.

M2, the broadest measure of money supply, rose 28.53 percent last month, up 0.09 percentage point from July. It already surpassed the target of 17 percent at the start of the year.


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