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New loans may reach 9 trillion yuan in 2009
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16:06, July 06, 2009

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Experts predict that China will issue 8 to 9 trillion yuan of new loans throughout 2009. A rapid increase of credit does not necessarily lead to inflation in reality, but will cause an expectation of inflation. China should be vigilant and prevent an asset bubble from taking shape.

New loans granted in the first half of this year are expected to surpass 6.5 trillion yuan, exceeding any annual total credit volume in China's history. Credit will steadily decrease in the second half of the year.

The launch of 4 trillion yuan of investment projects by the government has created a huge demand for credit, while the recovery of the real estate industry and other sectors has stimulated the growth of loans for non-governmental projects.

Judging from banks' internal operations, actual interest margins between deposits and loans are narrowing, pushing banks to expand their credit scale. Abundant liquidity increases banks' funding pressure. In particular, commercial banks generally view the abolition of credit control as a rare opportunity for development.

While rapid growth of credit will theoretically trigger inflation, in reality this is not necessary the case, said Guo Tianyong, director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics.

Over-capacity of production will continue for China's down-stream enterprises in the near future. International market prices of bulk commodities such as oil may continue to increase due to the depreciation of the US dollar, but the sustainability of these price hikes depends on final demand.

A rapid increase of credit does not necessarily lead to inflation in reality, but will cause inflation expectation to drive up asset prices in the stock and real estate markets, Guo said. China should be vigilant and prevent an asset bubble from taking shape.

By People's Daily Online

http://paper.people.com.cn/rmrb/html/2009-07/06/content_289504.htm



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