Growth in lending, money supply in China hit record highs

BEIJING: China’s new lending and money supply growth both surged to record highs in March, as banks continued their explosive credit expansion in support of the government’s efforts to rejuvenate the economy.

Banks extended 1.89 trillion yuan (US$276.6bil) in local currency-denominated loans in March, bringing the total for the first quarter to 4.58 trillion yuan – nearing the government’s full-year target of at least five trillion yuan. That helped lift annual growth in the broad M2 measure of money supply to a record 25.5% in March, up from 20.5% in February and easily exceeding economists’ expectations of a 21.3% rise.

Liquidity surged despite the smallest quarterly rise in the country’s foreign exchange reserves since the second quarter of 2001, reflecting slowing inflows through the trade surplus and foreign investment. The reserves rose just US$7.7bil in the first three months, reaching US$1.9537 trillion at the end of March.

Analysts saw the lending figures as a sign that Beijing’s moves to boost domestic demand were working, but they also cautioned against jumping to the conclusion that a rebound was on the immediate horizon.

“China has completed over 90% of its full-year target for bank lending in the first three months, and this is absolutely not sustainable,” said Zhang Xiaojing, an economist with the Chinese Academy of Social Sciences in Beijing.

“In addition, I don’t think we can say that the worst time for the Chinese economy is over,” he said. “The March lending is strong, but whether the strong growth in bank credit can revive the real economy sector is still unclear.”

One of the main concerns about the surge in lending has been that it could be financing stock market speculation as much as actual investment and spending, as reflected in the relatively high proportion of short-term bill financing in the totals.

Discounted bill financing, which companies use for short-term cash needs, accounted for 1.48 trillion yuan of the first quarter’s new lending, or 32.3% of the total.

The People’s Bank of China did not give a breakdown of the proportion for March, but it appears to have fallen, as the proportion was over 45% in February and about 40% in January, which economists would see as a good sign. — Reuters