CHINA: New credit dips again as policies take effect

2010-4-13

By Zhang Fengming

THE issuing of new credit in China fell further in March as regulators control lending growth to avoid overheating, the latest economic data showed yesterday.

The nation's banks extended a smaller-than-expected 510.7 billion yuan (US$74.82 billion) in yuan-backed loans last month, down from February's 700.1 billion yuan, the People's Bank of China said on its Website.

The median forecast for March new credit was 700-plus billion yuan.
It was way down from the monthly record of 1.89 trillion yuan a year ago when China pumped up liquidity to revive economic growth against the global financial crisis.

China's new credit issuance has fell for two straight months this year.

The growth in M2, the broadest measure of money supply, including cash and deposits, slowed down to 22.5 percent in March from February's 25.5 percent.

China has targeted a money supply growth of 17 percent this year.

"The slowdown of new credit is a set trend this year with China's tough stance on lending controls," said Li Wei, a Standard Chartered Bank economist.

"The March credit is smaller than market expectations but still bigger than the central bank's previous target, leading us to expect even tighter measures in the second quarter."

First-quarter new lending was 35 percent of the government's full-year target of 7.5 trillion yuan, partly because Chinese banks tend to lend in the early part of the year for maximum interest returns.
China's official monetary stance is still "appropriately loose" but tightening moves have started to take effect.

Li said an interest rate increase in the second quarter was possible as the central bank may use it as a tightening signal, though administrative credit control could be more effective in China.

The view is shared by JPMorgan Chase Bank economists who said interest rate increases would have a smaller impact on the economy but could have a much bigger impact on sentiment.
Banks in China issued 9.6 trillion yuan of new credit in 2009 amid the fiscal crunch.

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