* New lending tops 1 trln yuan, first time since Jan 2011
* Money supply growth of 13.4 pct beats forecasts of 12.9
* Foreign exchange reserves swell to $3.3 trillion in Q1
By Koh Gui Qing
BEIJING, April 12 China's bank lending trumped
forecasts to spike to 1.01 trillion yuan ($160 billion) in
March, a sign of fresh traction in Beijing's bid to boost credit
creation to support the cooling economy.
The surge in lending was the biggest monthly extension of
credit since January 2011, when new loans last topped 1 trillion
yuan, holding out hope that China's economy will not only avoid
a hard landing but pick up speed again later this year.
Economists said Thursday's data, which also showed
stronger-than-expected growth in money supply, reinforced bets
that an interest rate cut is unlikely since Beijing can ease
monetary policy by just loosening credit controls.
"The new loans number is very strong. It signals that loan
demand has rebounded and shows that the economy is turning,"
said Zhang Zhiwei, an economist at Nomura in Hong Kong.
"This is another signal that reinforces our view that the
first quarter is the bottom of the cycle and that momentum is
China is set to release its first-quarter growth report on
Friday at 0200 GMT, and analysts expect the slowest economic
expansion since the tail-end of the 2008/09 global financial
Analysts polled by Reuters expected first-quarter growth of
8.3 percent from the same period a year earlier. On a quarterly
basis, growth is expected to slow to 1.6 percent from 2.0
percent in the fourth quarter last year.
But things may be looking up judging by Thursday's data.
M2 money supply rose to a three-month high of 13.4 percent
in March from a year earlier, ahead of forecasts for 12.9
percent growth and following February's 13 percent expansion.
Economists had expected banks to make 800 billion yuan worth
of new loans in March. Outstanding yuan loans at the end of
March were 57.25 trillion yuan, an increase of 15.7 percent from
a year earlier.
Bank lending is a centrepiece in China's monetary policy and
is controlled by Beijing, which tells banks exactly how much to
Sources say Beijing gave banks the go-ahead to lend 8
trillion yuan this year, up from a 2011 target of between 7-7.5
trillion yuan, as it loosens policy to boost economic growth.
These loan targets are not announced publicly.
The burst in bank lending in March lifted overall lending in
the first quarter to 2.459 trillion yuan, ahead of a quarterly
target for 2.4 trillion yuan, and above the 2.2 trillion yuan
seen in the same period last year.
As part of Beijing's credit supervision, it tells banks to
pace themselves by lending about a third of loans each in the
first and second quarters, and a fifth of loans each in the
final two quarters of the year.
China's foreign exchange reserves, the world's largest, rose
by around $124 billion in the first quarter to $3.305 trillion
at end-March, reversing a rare decline of $20.6 billion in the
Ting Lu, an economist at Merrill Lynch-Bank of America, said
growing reserves indicated capital was returning to China after
fleeing in the second-half of 2011 when Europe's raging debt
crisis drove nervous investors out of emerging markets.
"The worst is over," Lu said in a note to clients. "Today's
data means that the chance of a rate cut is very small in the
He said he expects China to further reduce the level of cash
that banks must hold as reserves by 100 basis points to 19.5
percent this year, putting the economy on track to grow 8.6
percent in 2012.
But not all economists are confident the Chinese growth
engine will accelerate from April. Some say patchy economic data
in recent months and sluggish global demand suggest activity
could slacken further in the second quarter before recovering
The World Bank, for instance, cut its forecast for China's
2012 economic growth to 8.2 percent on Thursday, from 8.4
It said a rebound might not begin before the third quarter
of the year as listless foreign demand and a government-induced
real estate slowdown restrain a recovery.
Some analysts also wondered about the quality of some of the
new loans being written, as Chinese banks have been seen to be
increasingly exposed to sour loans and local government debt as
the property market and broader economy slows.
Economists and financial analysts estimate as much as 2-3
trillion yuan of loans made to local governments have gone bad
and that the scale of the problem may push up non-performing
loan ratios in the banking industry to around 5 percent from
their current average of 1.1 percent. Banks are now under
pressure to rollover some of those loans.
But in a sign Beijing is mindful that an overly-lethargic
housing market and overly-restrictive monetary conditions could
create even more headwinds for China's economy, it is starting
to unwind some of its strident policy tightening.
State media said on Thursday Chinese banks are giving
first-home buyers discounts on mortgage interest rates of
between 10 to 15 percent.
Small Chinese private firms which are always short on credit
are also getting more funding support from the government.
Beijing is said to be finalising rules allowing small- and
medium-sized firms to sell bonds, whilst encouraging private
investors to plough their cash into the financial sector as a
way of giving companies more access to loans.
"Policy support is very clear," said Tao Wang, an analyst at
UBS. "Even though the corporate sector may not have very strong
demand, the government will be less strict with credit to local
governments and developers."