Jan. 19 (Bloomberg) -- China’s central bank is said to be allowing a limited increase in first-quarter lending by the nation’s five biggest banks to support growth as the economy's expansion moderates.
The lenders can increase new loans by a maximum of about 5 percent from a year earlier, according to two people at state lenders who have knowledge of the matter. Separately, the China Banking Regulatory Commission has told lenders to contain local government debt risks, a person with knowledge of the matter said. The central bank won’t comment on anything related to credit quotas, a press official said in Beijing yesterday.
China’s economic growth cooled to 8.9 percent in the fourth quarter, the slowest pace since the first half of 2009, as Europe’s debt crisis curbed export demand and the housing market weakened. Premier Wen Jiabao aims to sustain the expansion without re-inflating property-price bubbles or driving up consumer prices.
“The government appears to be comfortable with the current pace of the slowdown and is holding back from more aggressive easing,” said Chang Jian, an economist at Barclays Capital in Hong Kong who has formerly worked for the Hong Kong Monetary Authority and the World Bank. The guidance amounts to “modest” loosening, Chang said.
The People’s Bank of China also said that 30 percent of full-year lending should be in the first quarter, with the same amount in the second and 20 percent in each of the final two quarters, the people said.
Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd., Agricultural Bank of China Ltd. and Bank of Communications Co. are the nation’s five biggest lenders.
The central bank’s guidance to lenders is “cautious easing, as it will provide some support to the economy but not enough to bring growth back above 9 percent,” said Yao Wei, a Hong Kong-based economist for Societe Generale SA.
Wen is still grappling with the fallout from a record credit expansion in 2009 and 2010, which fueled price gains and concern that local government financing vehicles will be unable to repay their debts. Inflation peaked at 6.5 percent in July last year.
China warned its banks to resist demand for credit from local governments as new officials in cities, towns and villages pursue projects that bolster growth, a person with knowledge of the matter said.
The banking commission told lenders this month to be on watch for loan applications for new programs disguised as funding requests for unfinished ones, said the person, declining to be identified as the order isn’t public.
World Bank’s Warning
Requests may increase as local leaders appointed in a nationwide shuffle seek funds to help create jobs in their regions, the person said. A press official at the banking regulator, who declined to be identified because of the agency’s rules, said he couldn’t immediately comment.
China reported yesterday that foreign direct investment declined in December by the most since July 2009, underscoring a World Bank warning that developing economies should “prepare for the worst” because of risks posed by Europe’s crisis. Home prices fell in 52 of 70 major Chinese cities in December from November as the government extended a crackdown on speculation, statistics bureau data showed yesterday.
China’s lending peaked in 2009 as officials allowed a credit boom to counter the effects of the global financial crisis. New local currency loans fell year-on-year in the first quarters of 2011 and 2010. In the first three months of last year, the amount was about 2.26 trillion yuan ($360 billion), Bloomberg data shows.
--Jun Luo, with assistance from Sophie Leung in Hong Kong and Paul Panckhurst in Beijing. Editors: Paul Panckhurst, Cherian Thomas
To contact Bloomberg News staff for this story: Jun Luo in Shanghai at email@example.com
To contact the editors responsible for this story: Paul Panckhurst at firstname.lastname@example.org; Chitra Somayaji at email@example.com