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Home >> Business
UPDATED: 16:51, May 11, 2007
China issues central bank bonds to curb excessive credit supply
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The People's Bank of China began on Friday to issue 101 billion yuan (12.9 billion U.S. dollars) of central bank bonds earmarked for commercial banks in a bid to squeeze their lending capacities.

It was the second time this year that the central bank issued compulsory-purchase bonds exclusively for commercial banks, after an issue of the same amount in March.

The new three-year bank bands have a contract interest rate of 3.22 percent, six base points lower than the ordinary bonds that financial institutions compete to buy, and three base points lower than the previous issue.

"The lower interest rate is a stronger punishment of commercial banks for their excessive lending in the first quarter," Friday's China Securities Journal cited unnamed analyst as saying.

China's newly-added outstanding loans surged to 1.42 trillion in the first quarter, 13 percent up from the same period last year and almost half of the quota set by the central bank for the whole year.

"Economic overheating, excessive lending and liquidity have grown out of the expectation of the central bank, which is why the central bank has adopted a series of austerity measures," said Hu Yuhang, an analyst with CITIC Securities.

The central bank announced last month its decision to raise the bank deposit reserve ratio by 0.5 percentage points as of May 15, the fourth rise this year, in an effort to rein in excess liquidity and slow growth.

"The central bank is resolute in curbing the excessive growth in credit supply and fixed assets investment and the austerity monetary policy will continue," said Qin Juan, an analyst with Chang Xin Asset Management.

The new issues are targeted at nine commercial banks that experienced fast growth in credit supply in April, with 25 billion yuan each for the Industrial and Commercial Bank of China and Agricultural Bank of China, 18 billion yuan for China Construction Bank and 16 billion yuan for the Bank of Communications.

Source: Xinhua

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