China's banks running out of loan quota, money supply keeps rising
The latest figures from China's central bank show that bank lending and the money supply grew in July despite government control efforts.
China's commercial banks lent 2.34 trillion yuan in the first seven months of the year using up 94 percent of their annual quota for loans, according to statistics from the People's Bank of China (PBOC).
New loans which had dropped in June picked up speed again in July contrary to government efforts to curb the money supply and tighten credit. In July alone banks lent 171.8 billion yuan.
All outstanding loans totaled 21.69 trillion yuan at the end of July, an increase of 16.3 percent from the same period last year.
The M2, a measure of the broad money supply and an indicator of possible inflation, grew 18.4 percent in July, 2.1 percentage points higher than the same period last year.
The M1 which reflects changes in the amount of money in the hands of residents and enterprises reported a growth rate of 15.3 percent in July, 1.4 percentage points higher than June.
Economists attributed the excessive growth to loose liquidity, which will reinforce the unbalanced economic structure and could cause hiccups in the economy.
The rise of the money supply was caused by China's ballooning trade surpluses and skyrocketing foreign exchange reserves, said Zhang Liqun, a macro-economics research fellow with the Development and Research Center of the State Council.
Government figures show that China's trade surplus in July hit a record 14.6 billion U.S dollars, an increase of 40.6 percent on July 2005.
Meanwhile, China saw an increase of 122.2 billion U.S. dollars in its forex reserves in the first half of the year, bringing about one trillion yuan into the money supply.
Seen as one of the major problems in China's economy, the excessive growth of the money supply and loans has forced the central bank to take a series of stringent measures since April, including raising interest rates and the reserves ratio of commercial banks.
The government plans a second increase in the reserve ratio, that is, commercial banks are required to deposit more money at the central bank. The rate will increase 0.5 percentage point on August 15.
The central bank also said recently that it will tighten controls on liquidity and curb the money supply and credit with comprehensive monetary policies.
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