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Experts: credit surge to ease gradually
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13:38, September 07, 2009

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In the first half of 2009, China's new bank loans reached 7.37 trillion yuan and caused ample liquidity. The broad money supply (M2) grew 28 percent, much higher than the central bank's early target of a 17-percent-growth. Analysts believe that it is important to follow a real "moderately loose" monetary policy and new loans growth is expected to slow down gradually.

The slow down progress of credit expansion should move forward gradually. Credit demand of subsisting projects and capital input to stimulate private investment should be taken into consideration, said Chen Daofu, deputy director general of the Research Institute of Finance under the Development Research Center of the State Council.

Chen noted that about 50 percent of credit surge in the first half this year was consisted of medium and long-term loans for massive large scale projects, which lead to a rigid demand for subsequent capital.

China's decision to maintain its monetary policy was partly caused by the global economic outlook. According to data released by the U.S. Department of Labor, unemployment rate in the U.S. reached a 26-year high of 9.7 percent in August. Its gloomy employment prospects indicate that it is still too early for the U.S. to carry out an exit strategy. On Aug. 9, China emphasized that the central bank was still committed to a "moderately loose" monetary policy.

Ha Jiming, an economist with China International Capital Corporation (CICC), said that the broad money supply (M2) may grow 25 percent in the whole year, and total new loans in 2009 may reach 10 trillion yuan. In the second half, a large amount of discounted notes will expire and help to keep a sufficient liquidity.

Lu Zhengwei, macro-economy analyst with the Fuzhou-based Industrial Bank, holds a different opinion, suggesting that this year's new loans will be around 8.7 trillion yuan. Limited by the requirements for capital adequacy ratio, new credit may see a sharp decline in 2010 and have a negative impact on China's economy if new bank loans keep surging in the second half.

By People's Daily Online

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