China’s January Loans Surge as Property Prices Climb

China’s lending surged to 1.39 trillion yuan ($203 billion) in January and property prices climbed the most in 21 months as banks extended more credit in anticipation of the government tightening monetary policy.

Lending was more than in the previous three months combined, data released by the central bank on its Web site today showed. Inflation slowed to 1.5 percent from 1.9 percent in December, a separate report showed. That was less than the 2.1 percent median estimate in a Bloomberg News survey of 31 economists.

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China’s 9.35 trillion yuan of loans in the past year has added to the risk that the world’s fastest-growing major economy may overheat as it rebounds from the financial crisis. At the same time, weaker inflation and a smaller-than-forecast gain in exports in January, reported yesterday, may encourage policy makers to only gradually withdraw stimulus.

“The urgency for immediate interest-rate increases has receded as consumer prices look stable,” said Ally Wang, who helps oversee about $1.2 billion at HSBC Jintrust Fund Management Co. in Shanghai. “But the tightening concern is still there and data for the following months still need to be closely watched.”

The Shanghai Composite Index gained 0.2 percent as of the 11:30 a.m. break in trading.

Property prices in 70 cities rose 9.5 percent in January from a year earlier, the National Development and Reform Commission said today. Producer prices climbed 4.3 percent, the most since October 2008, the statistics bureau said.

‘Excessive’ Credit Growth

M2, the broadest measure of money supply, rose 26 percent from a year earlier. Inflation weakened as food prices rose at a slower pace. Consumer prices rose 0.6 percent in January from December, less than the previous 1 percent month-on-month gain.

Last month’s economic data was distorted by a Chinese Lunar New Year holiday that fell in January in 2009 and in February this year.

“The pace of credit expansion in January was excessive,” said Yu Song and Helen Qiao, economists with Goldman Sachs Group Inc. in Hong Kong. “The policy goal of stable credit expansion has to be backed up by forceful measures.”

Premier Wen Jiabao has called for “more balanced” credit growth to help his government to manage inflation expectations.

January’s lending was 14 percent less than a year earlier, after the government targeted a reduction in new loans this year to 7.5 trillion yuan from a record 9.59 trillion yuan in 2009. Lending is biggest in the first quarter of each year.

China’s Bubble ‘Worry’

Besides targeting slower credit growth, the government has this year ordered banks to set aside larger reserves and tightened home lending, while leaving interest rates unchanged.

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Central bank adviser Fan Gang said Feb. 1 that asset price bubbles are the “real worry” for China’s economy. Bank of China Ltd., the nation’s third-largest lender by market value, said Feb. 3 that it had reduced discounts for some mortgages, citing rising property-market risks.

Gross domestic product expanded 10.7 percent last quarter from a year earlier, the fastest pace since 2007. Government economists warned last month that growth could accelerate to 16 percent this year unless stimulus measures were reined in.

“China’s economy still faces the risk of overheating if policy remains at current settings,” said Brian Jackson, an emerging-markets strategist at Royal Bank of Canada in Hong Kong. “We continue to expect a move towards tighter policy in the next few months.”

Zhou Monitors Prices

Central bank Governor Zhou Xiaochuan told reporters this week that price increases will be “closely” monitored, after saying last year that developing economies can accept inflation of more than 2 percent.

“Producer-price inflation will continue to outpace that of consumer prices, squeezing manufacturers’ profit margins,” said Kevin Lai, a Hong Kong-based economist at Daiwa Institute of Research.

Companies pushing up prices since China snapped a nine- month run of deflation in November include Beijing Yanjing Brewery Co. Lenovo Group Ltd., China’s biggest personal-computer maker, warned last week that profit margins this quarter may be eroded by more costly parts including computer-memory chips.

The government has tightened home lending and the central bank may raise the benchmark lending rate as early as next quarter, according to a Bloomberg News survey of economists on Jan. 21. The Shanghai Composite Index has fallen 14 percent from last year’s Aug. 4 high on concern that monetary tightening will slow growth and cut profits.

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