Chinese officials said they would scrutinize gains in stock prices without capping new lending after a record US$1.1 trillion of loans in the first half added to credit risks and threatened to cause asset bubbles.
The government wants stock market stability and is studying share price advances, Chinese Vice Finance Minister Ding Xuedong (丁學東) said at a press briefing in Beijing yesterday.
The People’s Bank of China has a range of tools to limit money supply, Su Ning (蘇寧), a deputy governor of the central bank, told the briefing.
The Shanghai Composite Index has rallied 79 percent this year and real-estate prices have rebounded, fueling concern that loans meant for infrastructure projects are being used for speculation. The government wants to cool asset markets without derailing the recovery of the world’s third-biggest economy, which grew 7.9 percent in the second quarter from a year earlier.
Shanghai’s benchmark stock index closed down 2.9 percent yesterday, before the briefing started, for the worst weekly loss since February. The measure fell by the most in eight months on July 29 amid concern that the central bank would rein in liquidity.
The government will monitor asset prices and create an “internal mechanism” to stabilize the stock market, Ding said, without elaborating.
The central bank will not consider asset prices when adjusting policies, said Su, who also elaborated on a reference in a quarterly monetary policy report to “fine tuning” policy, saying that this happened continuously.
“It’s not the policies that will be fine tuned, but the focus, intensity and pace of policies that will be fine tuned,” the central banker said.
The surge in loans in the first half was helped by the rollout of the government’s stimulus plan and lending won’t grow as quickly in the second half, Su said.
The government will maintain a moderately loose monetary stance and an expansionary fiscal policy as domestic and external demand remain weak, Zhu Zhixin (朱之鑫), vice chairman of the National Development and Reform Commission, told the briefing.
Inflation isn’t a concern, Su said.
“Harsh lending curbs would just hurt the economy,” said Sherman Chan (陳穎嘉), an economist with Moody’s Economy.com in Sydney.
She said the government would do more to monitor lending.
China’s banking regulator urged lenders on July 27 to ensure credit for investment projects flows into the real economy. Three days later, the regulator announced plans to tighten rules on working capital loans.
China Construction Bank Corp (中國建設銀行) president Zhang Jianguo (張建國) said on Thursday that the nation’s second-largest bank would cut new lending by about 70 percent in the second half to avert a surge in bad debt.
Construction Bank plans to extend about 200 billion yuan (US$29 billion) in loans, down from 708.5 billion yuan in the preceding six months. The company’s new lending through June 30 was 42 percent more than for all of last year.
“We noticed that some loans didn’t go into the real economy,” Zhang said in an interview at the bank’s headquarters in Beijing.
“I feel that some industries are expanding too rapidly. For example, housing prices are rising too fast, and housing sales are growing too fast,” Zhang said.
Investors are split on whether a stock bubble is a threat.
“This is a recovery story that is one of the strongest and most convincing in the world,” Chen Li (陳立), a Beijing-based strategist at Harvest Fund Management Co (嘉實基金管理公司), which oversees about US$22 billion, said on Tuesday. “I don’t think we’re in a bubble.”
Credit Suisse Group AG said this week that it would be difficult to prevent a “huge and damaging bubble from emerging” without monetary tightening.
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