China Said to Plan 8 Trillion Yuan Loans Cap for 2010

By Bloomberg News

Dec. 9 (Bloomberg) -- China’s banking regulator plans to slow new lending to between 7 trillion yuan ($1 trillion) and 8 trillion yuan next year, a person familiar with the matter said.

The China Banking Regulatory Commission’s recommended range compares with 8.9 trillion yuan of new local-currency loans in the first 10 months of this year. The person spoke on condition of anonymity because he isn’t authorized to discuss the matter publicly.

China is trying to ensure credit flow is enough to support an economic recovery while limiting the risk that this year’s lending boom will lead to bad loans and asset bubbles. The country will maintain a “moderately” loose monetary policy to keep economic growth from slowing, according to a statement from the annual central economic work conference that ended Dec. 7.

“This is pretty much in line with market expectations and should arm the government with enough bullets to maintain an economic recovery,” said She Minhua, a Shanghai-based analyst at Haitong Securities Co.

Phone calls to the CBRC’s press office weren’t answered.

The government’s 4 trillion yuan stimulus package and record bank lending helped ailing exporters refinance debt and provided funding for an acceleration in fixed-asset investment, reigniting economic growth that had fallen to the lowest in more than a decade.

Credit Standards

A debt-fueled increase in investments “may imply additional demand for loans in the future, to complete the underlying project,” the Bank for International Settlements said in a quarterly report published this month. Should China tighten monetary policy, that could “leave projects incomplete and lead to a build-up of bad loans.”

China’s credit boom may erode the quality of bank balance sheets as the jump in lending was “unavoidably” linked to an easing of credit standards, the BIS said.

The nation’s house prices jumped the most in 14 months in October, adding to concern that record lending may create asset bubbles in the world’s fastest-growing major economy. The benchmark Shanghai Composite Index has gained 78 percent this year as the economy recovered.

“History shows that credit growth of 13-14 percent can support fixed-asset expansion of over 20 percent,” She said. “So 7 trillion yuan of new loans will be adequate to keep existing projects floating and add on some new ones.”

The regulator in October said it would tighten regulation of personal loans to ensure that bank credits are not misused and “enter the real economy.” A “significant” part of loans doled out by banks may have flowed into equity and property markets, the BIS said.

Capital Eroded

China’s new loans may slow to 7 trillion yuan next year, UBS AG forecast last month. “We believe slower credit growth in 2010 will be key to avoid a boom-bust scenario in the economy,” UBS economist Wang Tao said in a Nov. 30 report.

China’s five largest banks submitted plans to regulators for raising money after unprecedented lending eroded their capital, four people with knowledge of the matter said last month. Chinese lenders would need as much as a combined 368 billion yuan to keep their capital adequacy ratios at 12 percent, according to BNP Paribas.

The CBRC’s loan target requires approval from the central government, the person said. The 7 trillion yuan to 8 trillion yuan range is similar to one proposed by Tang Shuangning, former vice chairman of the regulator, on Nov. 21.

--Philip Lagerkranser. Editors: Andreea Papuc, Malcolm Scott.

To contact the Bloomberg News staff for this story: Philip Lagerkranser at at lagerkranser@bloomberg.net