China Central Bank Says Lending Heads For ‘Sustainable Level’

China Central Bank Says Lending Heads For ‘Sustainable Level’


Oct. 5 (Bloomberg) -- Chinese central bank official Yi Gang said the strength of lending in the country isn’t a cause for concern and will stabilize, reflecting the government’s reluctance to rein in economic stimulus measures.

“I think overall, the situation will converge to a sustainable level,” Deputy Central Bank Governor Yi told Bloomberg News on Oct. 3 in Istanbul, where the World Bank and International Monetary Fund are having their annual meetings. “In August, it was already not too much. June and August were pretty flat.”

Chinese officials including Yi and Finance Minister Xie Xuren met in Istanbul with other Group of 20 officials amid pledges to help shore up the world economy’s recovery from the deepest recession since World War II. French Finance Minister Christine Lagarde expressed optimism after weekend meetings that China will play its part in rebalancing global growth.

“This is the first time I’ve heard the Chinese” expressly indicate their growth forecasts and plans for domestic demand, she said yesterday. It was “very precise language” that, if followed, will help “address global imbalances” and “have consequences on exchange rates.”

As global trade flows declined, China suffered a 10-month slide in exports, damping growth in the region and pulling the nationwide expansion rate down to 6.1 percent in the first quarter, the slowest pace in almost a decade.

Masterful

The government is using its 4 trillion yuan ($586 billion) stimulus and record bank lending to build railways, roads and power plants, mostly in the less-developed west and center of the country.

“The Chinese are masterful at entry and exit,” said Goldman Sachs Group Inc. Chief Economist Jim O’Neill in an interview, adding he expects lending to slow in coming months. “They could give lessons to many others.”

G-7 policy makers in Istanbul continued to lobby the Chinese government to help counter the dollar’s slide and smooth out lopsided global flows in trade and investment by letting the yuan appreciate faster. China, which controls the value of its currency, has kept the yuan largely unchanged in the past year against the dollar.

“We welcome China’s continued commitment to move to a more flexible exchange rate, which should lead to continued appreciation of the renminbi in effective terms and help promote more balanced growth in China and the world economy,” the G-7 said in a statement.

Stable Growth

China aims to achieve “stable and relatively fast” growth and contribute to a global recovery by maintaining the continuity and stability of its policies, Premier Wen Jiabao said on Sept. 30 in a nationally televised speech celebrating the 60th anniversary of the founding of the People’s Republic of China.

China’s new lending unexpectedly increased in August, reversing a dip in July, and money supply rose by a record, fueling the nation’s recovery from the slowest expansion in almost a decade. Yi’s comments echo others by China’s top leaders aiming to keep growth intact even as it fuels the risk of asset-price inflation.

At the same time, China will study the use of “regulatory tools” to adjust bank lending, Su Ning, another deputy governor at the country’s central bank, said Sept. 5.

A credit boom and a 4 trillion-yuan ($586 billion) stimulus package spurred economic growth to a 7.9 percent annual rate in the second quarter.

Loose Policy

China will stick to a “moderately loose” monetary policy and guide reasonable loan growth to further cement its economic recovery, the People’s Bank of China said Sept. 29. The country will continue to implement stimulus measures to boost domestic demand, the bank said.

“I think they’ve already started to pull back a little bit on the monetary side, and on fiscal side they don’t need to,” Goldman’s O’Neill said.

China’s banks extended 410.4 billion yuan of local- currency loans in August, up from 355.9 billion yuan in July and 271.54 billion yuan a year ago, the People’s Bank of China said on Sept. 10. M2, the broadest measure of money supply, rose 28.5 percent, the bank also said.

China’s inflation rate will climb to 3 percent for 2010 after a 0.5 percent decline in prices this year, the Asian Development Bank said in a Sept. 22 report.

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