China's banking regulator said it is giving "guidance" to banks to cool lending that has already topped its goal of 15 percent growth this year and that threatens to overheat the world's fastest-growing major economy.
The China Banking Regulatory Commission denied a Wall Street Journal report yesterday that it had ordered banks to freeze this year's lending at Oct. 31 levels.
A 15 percent ceiling on loan growth is "informal guidance, not a hard target," said Lai Xiaomin (
Record trade surpluses have pumped cash into China, threatening to stoke inflation, asset bubbles and investment leading to overcapacity in manufacturing. The central bank has raised the benchmark one-year lending rate by 1.17 percentage points this year to 7.29 percent and ordered commercial lenders to set aside larger reserves.
"Reserve-ratio requirement hikes and rate hikes have not been able to slow bank lending growth this year," said Sun Mingchun (孫明春), an economist at Lehman Brothers Holdings Inc in Hong Kong. "Therefore, the government has to rely on this non-market type of monetary policy tool."
Chinese banks extended 3.5 trillion yuan (US$471 billion) of new loans in the first 10 months of the year, a 15.6 percent increase from loans outstanding at the end of last year, according to central bank data.
"Banks that exceed the 15 percent cap will face regulatory obstacles in applying for a new branch opening or new product lines," said Li Shanshan (李珊珊), a Shenzhen-based analyst at China Merchants Securities Co (招商證券). "Therefore, banks still have an incentive to obey what the government says."
Lending is biggest early in the year "so slower lending in the remaining two months won't have a significant impact on their bottom lines," Li said.
Average loan growth of big state-owned banks this year is about 15 percent versus about 20 percent for small and medium-sized lenders, the analyst said.
The regulator last week told state banks to curb lending, citing the 15 percent target, the Shanghai Securities News said.
The China Business News said last week that overseas banks were told to tighten lending to real estate developers.
"We don't subject banks to hard-and-fast lending caps since individual banks have such different business needs," Lai said. "What we want is a reasonable pace of loans growth, dependent on each bank's capital-adequacy ratio, and the risk and quality of its loan portfolio."
The central bank this month ordered lenders to set aside more money as reserves for the ninth time this year, raising the ratio to 13.5 percent, the highest since at least 1987.
The trade surplus widened to a record US$27 billion last month.
Inflation last month jumped to 6.5 percent, matching August's rate, the highest in more than 10 years, on higher food prices. The benchmark CSI 300 Index of stocks has more than tripled in the past year even after declines since the middle of last month.
Government efforts to guide lending illustrate its reluctance to "raise rates too much or let the yuan appreciate faster" to curb liquidity, according to Wang Tao, head of economics and strategy for Greater China at Bank of America Corp (
The yuan has gained more than 11 percent against the dollar since the end of a fixed exchange rate in July 2005.