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INSTANT VIEW 4-China's Jan M2 money, loan growth quickens

Thu, Feb 12 2009, 02:51 GMT
http://www.afxnews.com

BEIJING, Feb 12 (Reuters) - Annual growth in China's broad M2 measure of money supply quickened to 18.8 percent in January from 17.8 percent in December, the central bank said on Thursday.

Banks extended 1.62 trillion yuan in new local currency loans in the month, much more than December's 772 billion yuan, offering further evidence that Beijing's efforts to stimulate credit in support of its economic growth are bearing fruit.

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KEY POINTS:

-- Median forecast for M2 was 18.0 percent

-- Yuan lending up 21.3 percent, beating forecasts of a 19.5 percent rise. New loans in January alone hit 1.62 trillion yuan.

COMMENTARY:

GAO SHANWEN, CHIEF ECONOMIST WITH ESSENCE SECURITIES IN BEIJING:

"The drop in M1 was mainly due to corporate holdings of large amount of discounted bills.

"We think M1 will begin to trend up in the next several months as bill issuance falls.

"The widening gap between M2 and M1 growth shows loosening liquidity in the market. That will have a positive impact on the economy and will be reflected in the second half of the year with an acceleration in investment, recovery in the real estate market and even an increase in consumption."

GLENN MAGUIRE, CHIEF ASIA ECONOMIST AT SOCIETE GENERALE IN HONG KONG:

"The bank lending figures are just a stunningly good piece of news for China."

He said the lending figures were the latest evidence that the economy is passing through an inflection point as the pace of deterioration slows.

"This dynamic of the banks being guided to lend for the government's infrastructure projects is falling into place dramatically quickly."

BIAN XUBAO, ANALYST WITH QILU SECURITIES IN JINAN:

"The growth in loans is is very fast and not sustainable. January new yuan loans are already one-third of the total extended in 2008.

"The expansion will lose momentum in March, or April at the latest.

"Due to the surge in loans, the central bank has no need to cut interest rates right now.

He said China's capital spending right now was mainly government-backed investment in infrastructure projects and expected central government investment this year, including loans from banks, would reach 2 trillion yuan.

However, as profits for traditional manufacturing industries fall, the pace of corporate investment will not keep up, he said.

TING LU, ECONOMIST WITH MERRILL LYNCH IN HONG KONG:

"From the macro perspective, it's very expansionary. I don't care about what kind of loan, whether short-term loans or bill financing or long-term. Close to one-third are still medium or long-term loans, so that's still a very big number.

"China is the first economy to see real credit expansion at this point in time, during this trough of the global slowdown. That differentiates China from other economies. Other countries, like the U.S., have the TARP programme and money injections to banks, but what's crucial for the economy is money from banks to the corporate sector and households."

LINKS:

For details, see the People's Bank of China website at http://www.pbc.gov.cn. Latest releases may not be immediately available.

MARKET REACTION:

-- The yuan stood at 6.8328 per dollar at 0226 GMT compared with 6.8330 before the data came out. The Shanghai stock market was down 0.56 percent compared with a fall of 0.64 percent before the figures were published.

BACKGROUND:

-- The State Council, or cabinet, has set a target of 17 percent M2 growth this year as part of a drive to make credit more easily available to the struggling economy.

-- As part of a switch in the second half of last year to a "moderately accommodative" monetary stance, China has cut interest rates five times since mid-September lowered banks' reserve requirements four times.

-- Banks have also ramped up lending in response to the government's 4 trillion yuan stimulus plan unveiled on Nov. 9.

But sceptics say a big chunk of the newly extended credit -- 39 percent in January -- has been in the form of short-term bill discounting, to ease firms' cash-flow strains, rather than longer-term infrastructure lending that will reap more solid economic returns.

-- Economists expect further cuts in interest rates and reserve requirements as policy makers strive to shield the economy from the impact of the financial meltdown, which has caused a contraction in exports for three months in a row.

(Reporting by Simon Rabinovitch, Langi Chiang and Zhang Shengnan; Editing by Alan Wheatley) Keywords: CHINA ECONOMY/MONEY

(alan.wheatley@thomsonreuters.com; +86 10 6627 1235; alan.wheatley@reuters.com@reuters.net)

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