China new bank lending drops--but probably not enough to head off another hike in reserve requirements

04/08/2011 2:41 pm EST


Jim Jubak

Founder and Editor,

Half empty or half full?

New lending for China’s four big state-owned banks came to 242 billion yuan ($37 billion) in March, reported Caixin Online on April 2 ( )

That total was well above the February figure of 218 billion yuan ($33 billion). So all the jawboning, increased reserve requirements and official pressure over the last year didn’t reduce lending activity by China’s banks last month. And new bank loans continue to provide extra fuel for rocket-powered money supply that sure doesn’t need any help. This number isn’t good news for the People’s Bank of China’s efforts to slow inflation.

But new lending of 242 billion yuan ($37 billion) was lower than the $266 billion yuan in new lending in March 2010. ($41 billion). From this point of view, all the jawboning, increased reserve requirements, and official pressure did have the effect of moderating the supply of new loans from the country’s biggest banks.

I suspect that the People’s Bank will want to reinforce that trend toward lower lending. I think we’ll see another increase in the reserve requirements, last raised on March 25, for big banks in the next few weeks, on top of this week's increase in benchmark interest rates.

By themselves, though, these numbers don’t tell investors much about money supply and lending growth in China. That’s because lending activity has increasingly moved to non-bank vehicles in an effort to escape government regulators. To attack that problem on March 1 Beijing launched what it has called a lightning audit of direct and indirect loans backed by local governments. Auditors are supposed to report their findings to the State Council on July 1.

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