By Ma Hongman (China Daily)
Updated: 2007-09-21 14:03

The People's Bank of China (PBOC), the central bank, released its financial statistics for August last week.

The most striking figure is that bank loans increased 302.9 billion yuan (US$39.85 billion) in the month while total bank loans grew by 3.08 trillion yuan in the first eight months of the year, already beyond the expected bank loan growth for the year - 2.9 trillion yuan.

The higher-than-expected growth rate of the new bank loans is a clear signal that investment fever is far from being reduced.

The central government has taken several measures to prevent the economy from becoming over-heated.

Since the start of the year, the central bank has lifted interest rates five times and the deposit reserve rate for commercial banks seven times to reduce excessive liquidity and check soaring consumer prices.

Against such a picture, the financial statistics in the first eight months have not followed the direction of the policymakers.

The primary reason is that the central bank's policy moves to tighten the economy have been deflected and not fully observed in practice.

As businesses are after profits, the banks are an important part in the money supply. The central bank raised interest rates to tighten liquidity, but it has to depend on the commercial banks to realize this goal.

The series of policy moves by the central bank has widened, rather than narrowed, the interest margin of banks.

Thus, the commercial banks find lending more profitable. It has become a natural choice for them to make more loans, turning a blind eye to the central bank's attempt at reducing liquidity.

From October 2004, the PBOC has raised the interest rate for deposits and loans nine times, the latest one effective since Monday this week. During that period, bank loans did not cease growing despite all the interest hikes.

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