December 12, 2014 / 8:51 AM / 4 years ago

UPDATE 2-China Nov bank lending jumps 56 percent as government orders up more stimulus

(Adds details)

BEIJING, Dec 12 (Reuters) - Chinese banks made 852.7 billion yuan ($137.8 billion) of new loans in November, up 56 percent from the previous month and easily beating market expectations, as the government ramped up efforts to avert a sharper economic slowdown.

Total social financing (TSF), a broader measure of overall liquidity in the economy, jumped 74 percent from October to 1.15 trillion yuan, the People’s Bank of China said on Friday.

Analysts had expected banks to make 650 billion yuan of loans last month, up from 548.3 billion yuan in October, but sources told Reuters this week that Beijing had ordered lenders to extend more credit in the final months of 2014 to spur activity.

“The lending numbers give hope that investment will pick up, now that there are more funds available to pay for capital spending projects,” said Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong.

“The data should be taken positively overall, although it does not outweigh the negative interpretation of earlier industrial output results.”

China’s central bank cut interest rates for the first time in over two years on Nov. 21 in a bid to shore up the economy and ease the burden on debt-laden companies.

Still, some analysts doubted whether the strong credit growth could be sustained in coming months as most banks remain reluctant to lend at a time when companies are struggling to pay off debt and bad loans are already sharply rising.

“The central bank or the government is encouraging banks to support the real economy more, but on the ground there’s still some cautiousness on lending, particularly when the macro economy is not strong and not too many see good projects to lend to,” said Haibin Zhu, chief China economist at JPMorgan in Hong Kong.

Data earlier on Friday showed signs of further economic fatigue in November, with factory growth slowing more than expected and investment expansion hovering near a 13-year low, putting pressure on policymakers to unveil stronger stimulus measures.

WHERE WILL THE MONEY GO?

Analysts expect more interest rate cuts in coming months or reductions in banks’ required reserve ratios (RRR), or both, but policymakers fear a flood of extra cash may be channeled into speculation, such as into the country’s suddenly red-hot stock market, rather than the real economic activity.

Investors have been rattled by wobbles in the world’s second-largest economy this year as slowing domestic investment and a cooling housing market dragged growth to a five-year low of 7.3 percent in the third quarter.

China’s broad M2 money supply rose 12.3 percent in November from a year ago, slightly less than expected.

Outstanding loans denominated in yuan rose 13.4 percent in November from a year earlier, compared with estimates for a 13 percent increase.

Bank lending and changes in money supply are crucial parts of China’s monetary policy. The government tells commercial banks how much to lend and when to lend each year.

The government has launched a crackdown on shadow banking activities to rein in financial risks and curb borrowing costs.

New bank loans made up for 74 percent of TSF in November, up from 51 percent in January, suggesting banks are shifting some shadow loans back onto their books.

TSF jumped from October but was still below the monthly average in the first 10 months.

$1 = 6.1900 Chinese yuan Reporting by Koh Gui Qing, Kevin Yao and Jake Spring; Editing by Kim Coghill

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