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Economists Warn More Credit Tightening Ahead in China

   Heda Bayron | Hong Kong 13 January 2011

Photo: AP

   Chinese  banks  usually  issue  about a third of their loans each year
   during  the  first  three months. Banking analysts say there are signs
   that  lending  continues  to  be  brisk  despite  efforts  by  Chinese
   authorities  to  contain  inflation by limiting the amount of money in
   the financial system.
   Banks lent 7.95 trillion yuan or $1.2 trillion last year, topping the
   government  target  of 7.5 trillion yuan. Chinese banks have been on a
   lending spree since 2009, when China implemented a massive stimulus to
   help counter the impact of the global economic crisis.
   Andy  Rothman, a China strategist at the Shanghai office of investment
   bank  CLSA, says Chinese authorities will scale back lending this year
   to about the same level as before the stimulus period.
   "What  I  think  weâre going to see is what I would describe as mildly
   accommodative  monetary policy this year," Rothman said. "Which really
   means  continued  normalization  back  to  the growth rates for credit
   liquidity  that  we saw in the five pre-stimulus years. I think we are
   going to see new lending of between $7 and $7.5 trillion."
   Rothman  downplays Chinaâs inflation risk, saying prices will moderate
   as   the   surge   in   food  prices  in  recent  months  was  largely
   weather-related.  He  expects  Chinaâs  inflation  rate to average 4.5
   percent  this year. Inflation in November surged to a 28-month high of
   5.1 percent.
   China  raised  interest rates twice last year and increased the amount
   of  money  banks  have  to  keep  as reserves to tighten money supply.
   Rothman  expects  interest  rates  to  increase  not  more than half a
   percentage  point  this  year,  which he says will happen in the first
   half.
   The  Chinese  central  bank set the yuanâs trading reference rate to a
   new  high  of  6.59 per dollar Thursday ahead of President Hu Jintaoâs
   visit to Washington next week.
   On  Wednesday,  U.S.  Treasury Secretary Timothy Geithner again called
   for  a more rapid appreciation of the yuan. A stronger yuan could help
   China  manage  rising prices as imported raw materials for its exports
   become  cheaper.  Many U.S. politicians and business leaders say China
   keeps  the yuan artificially weak, which makes imports from the United
   States and other countries more expensive.

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