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BIZCHINA / Top Biz News

China's economy no cooling signs
(Xinhua)
Updated: 2006-06-09 14:18

China's economy is facing heightened overheating signs, as outstanding bank loans surged 15.97 percent year on year by the end of May amid a seemingly unabated investment binge, a news report said Friday.

Chinese banks extended 209.4 billion yuan (US$26.1 billion) worth of local currency loans in May alone, nearly double that of the same month last year, the Xinhua-run Shanghai Securities News reported. The "big four" state banks accounted for half of the new loans.

In the first five months alone, newly-added loans reached 2.12 trillion yuan, already nudging the annual target of 2.5 trillion yuan set by the central bank.

Broad money supply jumped 19.5 percent in May.

The Securities News paper said it obtained the latest figures from insiders. The government's announcement is set to come out later this month.

The government has accelerated efforts to rein in excessive spending in real estate, roads, factory equipment and other fixed assets this year to cool the economy, which, largely driven by investment, has been growing at roughly 10 percent in each of the past three years.

On April 28, the People's Bank of China raised the minimum rate commercial banks charge on one-year loans in local currency, the yuan, 27 basis points, to 5.85 percent in an aggressive move to discourage lending. It was the first increase since October 2004.

The central bank, however, left interest rates on deposits unchanged as, theoretically, increased interest paid on deposits could encourage savings and dampen spending enthusiasm at a time when China is hoping its consumers will contribute more to economic expansion.

In the meantime, the central bank required domestic commercial banks buy multi-billion-yuan bills it issued in most weeks in a bid to further restrain their lending capacities.

However the new figures show China's latest round of the macro-control -- which also include a recent campaign by nine ministries under the State Council, or the Cabinet, to cool down the heated real estate market, by lifting the down payment requirement for house purchases -- actually had limited effects, economists and government officials acknowledge.

Chinese banks may issue as much as 3 trillion yuan worth of loans in 2006, they agree.

China targets an 8 percent growth rate for the full year, but its gross domestic product expanded a revised 10.3 percent in the first quarter.


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