China c.bank warns of risk in lending to polluters

BEIJING, July 31 (Reuters) - China's central bank chief on Tuesday warned banks over the risks of lending to energy guzzlers and heavy polluters, saying the government's increasingly tough stance towards such firms would lower their creditworthiness.

Aiming to make growth more sustainable, Beijing has introduced a slew of tightening policies, including raising thresholds for entering sectors that consume large amounts of energy and pollute a lot, as well as raising taxes for them.

Such industries will face even harsher policies in the future given that the State Council, or cabinet, has put energy efficiency at the top of its agenda, Zhou Xiaochuan, governor of the People's Bank of China, said in an article published on the central bank's Web site (www.pbc.gov.cn).

"Financial institutions should have a sense of policy risks in dealing with corporate clients and be on high alert towards firms that consume much energy, pollute a lot and create many emissions so as to improve the quality of their loans," Zhou wrote.

He said that China's rapid economic growth was coming at the expense of the environment and energy efficiency, and thus would not be sustainable if the current growth model persists.

The amount of energy China uses to generate each dollar of national income, or energy intensity, fell by 2.78 percent in the first half from a year earlier, after decreasing 1.33 percent in all of 2006.

But that pace still lags far behind the government's target of cutting emissions by an average of 4 percent a year between 2006 and 2010.

Besides stepping up moral suasion to lenders, the central bank will start including corporate borrowers' track records regarding energy consumption and pollution in the nationwide corporate credit database, Zhou wrote.

China should try to transfer some factories from coastal regions, which face serious environmental constraints, to the interior, he added.

Zhou said he also supported efforts to create an emissions quota and trading system.

((Reporting by Eadie Chen, editing by Jason Subler; Reuters Messaging: eadie.chen.reuters.com@reuters.net; +8610 6598 1268)) Keywords: CHINA ECONOMY/ENERGY

(C) Reuters 2007. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nPEK320375