China’s new loans rose by a record in January and money supply expanded more quickly as the government implemented a 4 trillion yuan ($585 billion) stimulus package to revive the world’s third-largest economy.
Banks extended 1.62 trillion yuan ($237 billion) of new local-currency loans and M2, the broadest measure of money supply, climbed 18.8 percent from a year earlier, the fastest pace in more than a year, the People’s Bank of China said today on its Web site.
China’s government has put pressure on banks to boost lending as the government rolls out a stimulus package to reverse the nation’s economic slide. Loan default risk is the biggest single threat to Chinese lenders, which face “a choppy 2009” because the potential for credit losses is rising, Fitch Ratings said last month.
“We believe China is the only economy in the world to see significant growth in credit to corporate and household sectors after September 2008, when the financial crisis worsened,” said Lu Ting and T.J. Bond, Merrill Lynch economists in Hong Kong. Soaring credit growth “might be at the cost of the future health of the banking system.”
The new lending is the equivalent of 40% of the government’s proposed stimulus spending.
The stimulus package announced in November spans spending through 2010 on public housing, railways, highways, airports, power grids and reconstruction work after last year’s earthquake in Sichuan province.
Beats Economists’ Estimates
The increase in money supply compared with the 18.4% median estimate in a Bloomberg News survey of 14 economists. M2, which includes cash and all deposits, gained 17.8% in December.
The central bank is targeting a 17% increase in money supply this year. Officials are on alert for the risk of deflation, after consumer prices rose by the least in two years in January and producer prices fell by the most since 2002.
China’s central bank has cut interest rates five times from September and reduced the proportion of deposits banks must hold as reserves. It has also eliminated quotas that limited annual lending by banks.
The International Monetary Fund forecasts China’s economy will expand 6.7% this year, the weakest pace since 1990.
Source: Bloomberg
Banks extended 1.62 trillion yuan ($237 billion) of new local-currency loans and M2, the broadest measure of money supply, climbed 18.8 percent from a year earlier, the fastest pace in more than a year, the People’s Bank of China said today on its Web site.
China’s government has put pressure on banks to boost lending as the government rolls out a stimulus package to reverse the nation’s economic slide. Loan default risk is the biggest single threat to Chinese lenders, which face “a choppy 2009” because the potential for credit losses is rising, Fitch Ratings said last month.
“We believe China is the only economy in the world to see significant growth in credit to corporate and household sectors after September 2008, when the financial crisis worsened,” said Lu Ting and T.J. Bond, Merrill Lynch economists in Hong Kong. Soaring credit growth “might be at the cost of the future health of the banking system.”
The new lending is the equivalent of 40% of the government’s proposed stimulus spending.
The stimulus package announced in November spans spending through 2010 on public housing, railways, highways, airports, power grids and reconstruction work after last year’s earthquake in Sichuan province.
Beats Economists’ Estimates
The increase in money supply compared with the 18.4% median estimate in a Bloomberg News survey of 14 economists. M2, which includes cash and all deposits, gained 17.8% in December.
The central bank is targeting a 17% increase in money supply this year. Officials are on alert for the risk of deflation, after consumer prices rose by the least in two years in January and producer prices fell by the most since 2002.
China’s central bank has cut interest rates five times from September and reduced the proportion of deposits banks must hold as reserves. It has also eliminated quotas that limited annual lending by banks.
The International Monetary Fund forecasts China’s economy will expand 6.7% this year, the weakest pace since 1990.
Source: Bloomberg
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