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China: Concerns over excess credit growth

BEIJING - Chinese banking experts predict that the People's Bank of China (PBC) would adopt a series of policies to curb the recent excessive growth of monetary credit. But such policies, interpreted as policy tools to "cool down" the overheated granting of bank credit, would remain prudent and not hamper the rapid and stable growth of China's economy, said Wang Songqi, a financial analyst of the Financial Research Center of the Chinese Academy of Social Science.

According to the latest official statistics, outstanding loans reached 16 trillion yuan (about US$1.93 trillion) by the end of July, up 23.2 percent year-on-year and the highest growth since August 1996. Robust growth momentum of China's national economy and strong growth of investment in fixed assets could trigger such growth, Wang explained.

In its quarterly implementation reports on the monetary policy issued on Tuesday, the PBC also offered two reasons why local commercial banks are encouraging more enterprises to take out more commercial loans. Some commercial banks intended to issue more new loans to handle their non-performing loans (NPL), the PBC said.

The central bank warned that the continued excessive growth of monetary credit loans might help generate new NPLs and trigger financial crisis due to the underdeveloped risk management system of China's commercial banks. The central bank is unlikely to adopt drastic monetary policies to decrease credit, although the bank has given a clear warning about the situation in the implementation report, Wang predicted.

An abrupt reduction of commercial loans would be like "cutting down the blood supply" of those Chinese enterprises, Wang said, citing the fact that about 90 percent of Chinese enterprises' business financing came from the monetary credit from commercial banks.

Furthermore, the current prudent monetary policy is vital for the rapid and healthy development of China's economy, Wang added. In the implementation report, the central bank also said it would keep a close eye on the latest developments of the financial business at home and abroad and improve the monitoring procedures on banking credit. To continue issuing central bank bills is a logical option to maintain the growth momentum of the national economy and to curb the excessive growth of monetary credit, the PBC said in the report.

(Asia Pulse/XIC)

Aug 16, 2003

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