The central bank extended a temporary 50 basis point increase in the reserve requirement for some lenders by three months, two people briefed on the matter said today. Photographer: Nelson Ching/Bloomberg China is likely to set a target of at least 7 trillion yuan ($1.1 trillion) of new loans for 2011 after leaders met to decide key economic policy objectives for the coming year, said two people briefed on the matter. The government also aims for 4 percent inflation, 8 percent economic growth and 16 percent money supply expansion for next year, the people said, declining to be identified because the information isn’t public. No final target for new lending has been set and the figure may change, one person said. A quota of more than 7 trillion yuan would exceed estimates made by UBS AG and Bank of America Corp. in the past month, suggesting the government may avoid stepping up a clampdown on lending. China moved to rein in credit this year after record loan growth in 2009 caused inflation to quicken and home prices to surge. “This is a positive surprise to the market and is likely to trigger a rebound in banking valuations,” said Dorris Chen, a Shanghai-based analyst at BNP Paribas SA. “The economy needs this amount of credit to keep existing projects running instead of turning them into a pile of bad loans.” The central bank has a target of 7.5 trillion yuan of new loans for 2010, a ceiling that was almost breached in the first 11 months of the year, and has forced banks to set aside more deposits as reserves three times in five weeks. Officials at the State Council did not immediately respond to a fax seeking comment, and a press officer at the People’s Bank of China didn’t return two calls to her office. Trust Loans The Hang Seng Finance Index rose 0.6 percent at 3:45 p.m. in Hong Kong. The gauge, which includes shares of China’s three largest lenders, has fallen 4.9 percent in the past month. Economists at UBS and Bank of America forecast a new-loan quota of 6.5 trillion yuan to 7 trillion yuan for next year. China’s leaders, including President Hu Jintao and Premier Wen Jiabao, met over the weekend to discuss economic policies for 2011. New lending for this year may be higher than official figures suggest, or about 9 trillion yuan, when off-balance sheet credits and short-term financing bills that get converted into loans are included, one of the people said. China’s banking regulator in August ordered lenders to transfer off-balance sheet loans extended through trust firms back onto their books by the end of 2011 and make provisions equal to 150 percent of potential losses. The move was aimed at curbing banks’ practice of lending proceeds from sales of wealth management products through trust companies. Price Stability Inflation jumped to 5.1 percent in November and property prices rose even as the government imposed restrictions on mortgage lending, increasing the risk that China will have to resort to a more abrupt monetary tightening next year. The central bank held off over the weekend on an interest- rate increase predicted by firms including UBS and Mizuho Securities Asia Ltd. China’s leaders pledged to give a greater priority to stabilizing prices in 2011 and to better manage liquidity, Xinhua News Agency reported yesterday. Wen summarized the coming year’s economic tasks and laid out key targets and economic policies, the report said without elaborating on the targets. The government will continue to use loan quotas, reserve ratio requirements, bad-debt reserves and capital ratios to manage loan growth and liquidity in 2011, May Yan, a Hong Kong- based analyst at Barclays Capital, wrote in a note to clients today. She predicted a credit quota of 7 trillion yuan for next year. ‘Disorderly Fall’ Chinese banks advanced 7.45 trillion yuan of new loans in the first 11 months of this year, taking the outstanding amount to 47.4 trillion yuan as of Nov. 30. The nation’s biggest banks stopped expanding their loan books late last month to avoid exceeding the full-year quota, people with knowledge of the matter said on Nov. 23. In November 2008, China removed an annual quota for new loans and started encouraging lending to revive the economy during the global financial crisis. New loans soared to a record $1.4 trillion the following year, fueling speculative property investments that caused home prices to skyrocket. China should raise interest rates further and impose a property tax to curb the risk of asset bubbles and a “disorderly fall” in home prices, according to a working paper by the International Monetary Fund published this month. China’s central bank has raised interest rates once since December 2007, pushing the benchmark one-year deposit rate to 2.5 percent and the lending rate to 5.56 percent in October. Across Asia, India has moved six times this year, Malaysia three times and South Korea twice. --John Liu. Editors: Chitra Somayaji, Paul Panckhurst To contact Bloomberg News staff for this story: John Liu in Beijing at +86-10-6649-7565 orjliu42@bloomberg.net To contact the editor responsible for this story: Bruce Grant at bruceg@bloomberg.netChina Said to Plan for at Least $1.1 Trillion Credit Expansion Next Year
Tuesday, 14 December 2010
By - Dec 13, 2010 8:34 AM GMT
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