China has moved to curtail bank lending for the second time in a month in the latest effort to cool down its supercharged economy.
Chinese leaders worry that a stimulus-driven torrent of lending is fuelling a dangerous bubble in stock and real estate prices. They also are concerned that the flood of money surging through the economy is adding to inflation.
Beijing declared China had emerged from the global crisis after economic growth rebounded to 10.7 per cent in the final quarter of 2009. But authorities say the global outlook is still uncertain, and analysts expect them to try to avoid rate hikes even as they start winding down their stimulus.
Banks were ordered on Friday to increase reserves by half a percentage point - to 16.5 per cent for large lenders and to 14.5 per cent for smaller institutions. Rural lenders that serve farmers were exempted to guarantee adequate credit for agriculture.
The move was in line with expectations that Chinese authorities were trying to control credit and keep the recovery on track, analysts said. But it still sent European bourses and Wall Street stocks into the red.
‘‘The message coming out of China in recent weeks has been quite clear - policymakers are becoming more concerned about containing inflationary expectations and managing the risk of asset price bubbles as a result of last year’s aggressive expansion of credit,’’ Jing Ulrich, JP Morgan’s chairwoman for China equities, said in a report.
‘‘We have already seen some scaling back of incentives that have spurred record sales in the domestic property sector and authorities have made clear that they will step up scrutiny of property lending to curb ’overly rapid’ price gains in some cities.’’
The government reported on Thursday January bank lending rocketed to 1.4 trillion yuan ($225 billion) - nearly one-fifth of the planned 2010 total. That was despite a January 12 order to banks to raise reserves, also by 0.5 per cent, and repeated commands to keep lending at sensible levels.
Also Thursday, the government said the rise in housing costs in 70 Chinese cities accelerated in January, jumping 9.5 per cent from a year earlier, up 1.3 percentage points from December’s growth rate.
Land prices surged by 106 per cent last year, according to Standard Chartered Bank, and Chinese newspapers are filled with reports of well-heeled investors paying record prices for luxury apartments and villas.
Commercial banks have said they will tighten controls on lending.
The country’s biggest lender, Industrial & Commercial Bank of China, said this week it will reject loans to real estate and industrial projects deemed too dirty, energy-intensive or unnecessary.
Banks are expected to scale back lending to roughly 7.5 trillion yuan ($1.24 trillion) this year, after handing out some 9.5 trillion yuan, the industry’s top regulator, Liu Mingkang, said last month.
Analysts say Beijing’s move in raising reserves while leaving the total loan target for the year unchanged indicates it will let banks lend the full amount but is trying to force them to smooth out lending over the year instead of making the bulk of loans in the first few months as they usually do.
