China bank lending quickens in August

BEIJING: China's bank lending quickened to 548.5 billion yuan in August, rebounding from a seven-month low of 492.6 billion yuan in July, due to a slight relaxation in Beijing's credit tightening campaign.

But inflation, not growth, remains the top concern for Beijing and China's central bank is unlikely to alter its current "prudent" monetary policy stance, analysts said.

"August lending was stronger than expected, but it's too early to say that the central bank is ready to relax," E Yongjian, an economist with the Bank of Communications in Shanghai, said.

"As inflation is relatively high and the external environment remains uncertain, the central bank is expected to maintain its current stance, but it is unlikely to take any big moves like an increase in interest rate or the required reserve ratio," he added.

Sources told Reuters earlier that the People's Bank of China (PBOC) has punished some state lenders with "designated bills" for lending too much in August.

China's broad money supply, M2, rose 13.5 percent, slowing down further from 14.7 percent in July, the central bank said on Sunday.

Bank lending is a focal point in China's monetary policy as it is controlled by Beijing through loan quotas to manage economic growth and control inflation.

As uncertainties in the world economy increase with the unfolding debt crisis in the Euro zone and the United States, many analysts argue that Beijing would refrain from further tightening policy.

But an immediate policy relaxation is also unlikely since China's consumer inflation has stayed stubbornly high.

"The economy is quite stable, according to the August data," E with Bank of Communications said.

Data earlier showed China's consumer price index eased to 6.2 percent in August from the three-year high of 6.5 percent.

While China's monthly publication of bank lending data is a barometer for the amount of lending that is happening, it does not paint a comprehensive picture.

Instead, a rising portion of lending and fund raising activities are happening outside Chinese regulator's purview, through off-balance-sheet bank lending and informal loans offered by cash-rich people.

Copyright Reuters, 2011