The Rising Influence of Rising Affluence

[DewDiligence]

China Steps Up Loans to Keep Economic Engine Humming

http://online.wsj.com/article/SB10001424052702303901504577459832384809496.html

›By WILLIAM KAZER
June 11, 2012,

BEIJING—China's central bank is stepping on the accelerator, letting banks lend more to ensure that the nation's growth engine doesn't slow too sharply amid a sluggish global economy.

May data from the central bank showed that new bank loans for the month were up sharply from April's level, outpacing economists' already-optimistic expectations. And economists say the trend of stepped-up lending is likely to continue in the months ahead.

New yuan loans issued by Chinese financial institutions totaled 793.2 billion yuan ($125.6 billion) in May, up from 682 billion yuan in April, data from the People's Bank of China showed Monday.

The median forecast of 15 economists polled earlier was for new loans of 750 billion yuan.

"The data are obviously stronger than our expectations and show that the central bank's loosening measures have taken effect," HSBC economist Ma Xiaoping said.

China has been moving to boost its economy as it stares at a raft of data underscoring less-than-robust growth—at least by Chinese standards.

Economic growth was 8.1% year-on-year in the first quarter, the lowest quarterly rate in three years, and more recent data have generally confirmed a sluggish trend, as exports struggle and Beijing keeps a tight grip on the domestic property market.

Industrial output in May was up 9.6% from a year ago, better than April's 9.3%, but that was the slowest rate in nearly three years. The May level was below expectations of 9.9%.

An easing in inflation has given the central bank the confidence to press ahead with more aggressive monetary easing. Consumer inflation rose a tame 3% in May, down from 3.4% in April.

In a surprise move last week just before the latest data were released, the PBOC brought out its big policy weapon, cutting benchmark interest rates for the first time since December 2008 [#msg-76397675]. It has also cut the proportion of deposits that banks must hold in reserve three times since November—most recently last month—making more bank funds available for lending.

In addition, Beijing has unleashed a flurry of mini-stimulative measures in recent weeks [#msg-76087397], from quicker approvals for major projects to incentives for the purchases of household appliances, and has pushed ahead with tax changes to spur business activity. Officials have also said they want more money poured into railway construction.

Figures released by the Finance Ministry on Monday showed that fiscal spending in the first five months of the year was up 22% from the year-earlier period.

Analysts say the speeding up of big infrastructure projects will ensure that medium- and longer-term lending will continue to expand in the months ahead.

"We expect further acceleration in money and credit growth in June," said Goldman Sachs economist Yu Song.

Also Monday, the National Bureau of Statistics data showed that growth in China's production of industrial metals including bellwether crude steel mildly slowed in May from the previous month as broader demand weakened.

Output of key industrial commodities in the world's second-largest economy is a good gauge of producer confidence. Crude steel output, most of which feeds China's all-important construction sector, rose 2.5% in May from a year earlier and 1.1% from April. However, on a daily-average basis—a more accurate adjustment—production in May fell 2.5% compared with April.

China's broadest measure of money supply, M2, rose 13.2% at the end of May from a year earlier, faster than the 12.8% increase at the end of April. It beat economists' expectations of a 12.7% rise as well.

The PBOC also said total social financing—a new measure designed by the central bank to better gauge the supply of credit in the economy beyond the traditional measure of new yuan loans—reached 1.14 trillion yuan in May, up 177.5 billion yuan from April and up 56.2 billion yuan from a year ago.‹