China's growth in new loans begins to slow
Deceleration eases risk of asset bubbles
May 12, 2009
By Kevin Hamlin and Rob Delaney Beijing
China's new lending cooled last month, easing concern that banks are taking on too much risk in a credit boom after the government dropped restrictions on loans last November.
Money supply rose at a record rate last month.
New lending last month came in at 591.8 billion yuan (R724bn), the central bank said yesterday, about a third of the record 1.89 trillion yuan in March. M2, the broadest measure of money supply, rose 26 percent from a year earlier.
In the first four months of the year China's new loans exceeded a central bank target for the full year as lenders supported the government's 4 trillion yuan stimulus package. The slowdown last month lessens the risk that credit growth will lead to asset bubbles and bad debts.
"There were concerns about rising non-performing loans. Those concerns will have eased," said Ben Simpfendorfer, an economist at Royal Bank of Scotland. "If bank loan growth continues to drop from here that would be a worry, but I don't expect that."
The Shanghai Composite index fell 1.8 percent. The yuan was little changed at 6.8223 a dollar at 3.25pm in Shanghai.
Consumer prices fell 1.5 percent year on year last month, the statistics bureau said yesterday, making it easier for the government to maintain the "moderately loose" monetary policy that saw restrictions on banks' loan volumes scrapped.
The central bank said last week that China had not established a stable economic recovery, with lending concentrated on government projects while small businesses lacked cash.
After lending surged six times year on year in March, new yuan loans last month rose about 26 percent from a year earlier, the central bank said.
Other data this week may show investment growth rose and a decline in exports moderated, strengthening a fledgling recovery in the third-biggest economy. China is battling a global recession that has dragged economic growth to 6.1 percent in the first quarter, the slowest pace in almost a decade.
Urban fixed asset investment grew 29.1 percent in the first four months from a year earlier, according to a survey by Bloomberg. That compares with a 28.6 percent gain in the first three months.
Exports may have dropped 15.3 percent last month, the smallest decline this year. Official trade and investment figures will be released today.
"The economy has gained speed heading into the current quarter," said Wang Qian, an economist with JPMorgan Chase. "We expect it to strengthen further as policy stimulus kicks in more powerfully and the external environment gradually improves."
That view contrasts with interest rate swaps showing traders paring expectations for the speed of the recovery.
Consumer prices fell for a third month on lower costs for food and commodities. Producer prices plunged 6.6 percent, the most since at least 1999. While lower prices may encourage consumer spending, the central bank is on guard against entrenched deflation, where people delay purchases in the hope of better deals.
"Downward pressure on consumer prices still exists," Su Ning, a deputy governor of the People's Bank of China, said yesterday. The stimulus package announced last November was taking effect and the economy was recovering.
Chinese manufacturing expanded in April for the first time in nine months, the CLSA China purchasing managers' index showed.
General Motors said its sales in China rose 50 percent last month to a record. Its sales increased 25 percent to a record 1.15 million units.
The banking regulator said last month that lenders faced "severe" challenges in managing their risks.
"The size of lending in the first quarter was quite astonishing," said Wang Tao, an economist at UBS in Beijing. "It takes time to digest that much money."
Besides the risk of bad loans, the credit boom may inflate asset prices. Shanghai stocks have climbed 42 percent this year. - Bloomberg
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