FocusNo let-up seen in China's aggressive lending - analysts

15 October 2009 07:45  [Source: ICIS news]

By Fanny Zhang

GUANGZHOU (ICIS news)--China's aggressive lending is expected to continue for the rest of the fourth quarter, providing firm support to fund-intensive industries like the petroleum and petrochemicals sector, to make sure the country stays on a sustainable economic recovery path, analysts said on Thursday.

“The petrochemical industry needs big volume of funds and liquidity to support operation and easy loan is crucial for that business,” said Zhang Junfeng, an analyst at China Galaxy Securities.

In September, Chinese banks extended yuan (CNY) 516.7bn ($75.65bn) in new loans, representing a 37.9% year-on-year increase and a 26% jump from August 2009, based on official data from the Peoples’ Bank of China.

“September’s new loan far exceeded market expectation, which is some CNY400bn. The high figure matches the strengthening in investment and demand,” said Liu Qiyuan, an economist at China Merchant Securities.

Total lending in the first three quarters ballooned 149% year on year to CNY8,670bn, based on central bank data.

China has maintained a loose credit-access policy since the start of the year, in line with its CNY4,000bn fiscal stimulus package introduced in late 2008 to ensure that the pace of its economic growth would not significantly slow amid the global recession.

The Chinese government is targeting an 8% GDP growth this year, one percentage point lower than the 9% growth recorded in 2008.

On the strength of the fiscal stimulus package, demand from China  a major importer of petrochemicals in Asia  almost single-handedly boosted regional product prices early this year. 

Meanwhile, official data showed that China’s crude imports in September increased 14% year on year to 17.2m tonnes, with total imports in the first three quarters at 146m tonnes, up 8.2% year on year.

“The data is another indicator of recovery,” said Li Li, an analyst at China energy market intelligence C1 Energy.

The government is expected to keep its relatively loose money policy in the fourth quarter to ensure continuity in the recovery pace, analysts said.

Liu at China Merchant Securities estimated that average new lending would still be a high CNY400bn in the last three months of the year.

There is no reason to fear inflation despite the credit boom that China can afford to keep a loose monetary policy, said Liu

“Both demand and the overall economy are in the below-potential territory. Inflation wouldn’t come early, at least [not] before the middle of next year,” Liu said.

“Exchange rate is a bigger concern. Hiking interest rate would fuel inflow of hot money,” Liu said, adding that this could lead to a stronger yuan that would be “detrimental to [China's] already fragile exports”. 

Exports have declined for the 11th month in September, falling 15.2% year on year to $115.93bn (€77.67bn), based on official data released on 14 October.

China’s exports have been faltering continuously in the past few months because of weak international demand. Therefore, a loose monetary policy as a way to stimulate domestic demand is still necessary in the coming months, although money supply is already enough to support an 8% GDP growth,” Liu said.

($1 = CNY6.83/$1 = €0.67)

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