China overshoots loan target

City A.M. Reporter
CHINA overshot its bank loan target in 2010 and finished the year with money growth still running too fast, underscoring the need for more decisive policy tightening to keep inflation in check.

At the same time, a record $199bn surge in foreign exchange reserves in the fourth quarter pushed China’s stockpile, already the world’s biggest, to $2.85 trillion, highlighting that money streaming in from abroad was complicating policy efforts at home.

Chinese banks issued 7.95 trillion yuan (£1 trillion) in new loans last year, the central bank said yesterday, more than the 7.5 trillion yuan that the government wanted for the full year.

The broad M2 measure of money supply grew 19.7 per cent, also topping the official target of 17 per cent.

“Lending is still excessive and China’s process of monetary normalisation has not finished yet,” said Wu Tujin, economist with Guosen Securities in Shenzhen.

“That means China will still face high pressure from inflation and asset bubbles.”

More than just an economic issue, high-speed money and credit growth has become a political concern, helping propel Chinese consumer inflation to its fastest in more than two years.

Determined to rein in rising prices, a source of public discontent, the government declared late last year that it would shift to a tighter monetary policy stance. Some effects of that could be seen in the data for the final month of the year.

Chinese banks extended 481bn yuan in new loans in December, down from 564bn yuan in November and the lowest in one year.