China’s Central Bank Pledges to Guide Loan Growth

By Bloomberg News

July 13 (Bloomberg) -- China’s central bank pledged to do more to guide loan growth as a record expansion in credit adds to the risks of asset bubbles and bad debts.

The People’s Bank of China will “strengthen monetary and credit management,” Li Dongrong, an assistant governor, said in a statement on the agency’s Web site. It will “guide the direction of money and loans” to ensure stability in the financial sector, Li said.

New loans rose almost fivefold in June as the credit boom revived growth in the world’s third-biggest economy, helping the Shanghai Composite Index to climb 80 percent from last year’s low. The central bank urged June 25 more lending to rural areas and small and medium-sized businesses and less to polluting industries and those with overcapacity.

“The central bank may work on more policies to better guide loans to boosting the real economy,” said Xing Ziqiang, an economist at China International Capital Corp. in Beijing. “The bank might have found that despite rapid loan growth, exporters still face difficulty in getting funds.”

Exports fell for an eighth month in June, the government said last week. Yuan forwards dropped by the most in more than a month today on speculation the central bank will keep the currency stable to help exports recover. The yuan was little changed, closing at 6.8327 against the dollar.

‘Gloomy’ Export Outlook

Complications and “new challenges” for policy makers include the difficulty of boosting domestic demand and the “gloomy” state of global demand, Li said. He reiterated government statements that the economy is showing “positive signs.” He didn’t explain what extra measures will be taken to guide loans and manage credit.

The People’s Bank of China dropped loan restrictions in November and pressed lenders to support a 4 trillion yuan ($585 billion) stimulus package. New loans rose to 1.53 trillion yuan in June.

Rapid loan growth may continue because the government is concerned that the recovery is fragile and some major projects have been only partially financed, the economist Xing said. The economy grew 6.1 percent in the first quarter, the slowest pace in almost a decade.

Pressure on the banking system may intensify as a result of a rapid increase in lending, Standard & Poor’s said today. The expansion of credit poses risks for lenders and excessive concentrations of credit can undermine financial stability, the China Banking Regulatory Commission said July 7.

‘Loose’ Monetary Policy

The central bank will stick with the policy direction set by the central government, Li said today. That stance includes a “moderately loose” monetary policy and a “proactive” fiscal policy. The People’s Bank of China will also “improve financial support for the economy,” he said.

Li was speaking at meetings during his field trip to east China’s Zhejiang province on July 8 and July 9, the statement said.

China’s central bank has asked the nation’s main lenders to report loan and deposit data daily in the last five days of each month, the 21st Century Business Herald reported today, citing a commercial bank official it didn’t name. Bank branches tend to cram loan books at the end of each month and each quarter to boost performance, the newspaper said.

To contact the Bloomberg News staff for this story: Li Yanping in Beijing at