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PBOC to prevent 'excessive fluctuations' in money supply next year

By Xin Zhiming (chinadaily.com.cn)
Updated: 2009-12-23 18:38

China's central bank, the People's Bank of China (PBOC), said Wednesday that it will work to prevent "excessive fluctuations" in money supply next year, sending a signal that the country will not sharply reduce bank lending despite its explosive growth this year, analysts said.

"(We will) properly manage the velocity of money supply growth and guide the financial institutions in their extension of lending next year to prevent excessive fluctuations," the central bank said in a statement after its fourth-quarter monetary policy commission meeting.

China's new yuan-denominated lending totaled 9.2 trillion yuan ($1.35 trillion) in the first 11 months of the year, more than double the same period of last year. The increase in available credit was part of a broader Chinese government strategy to stimulate the economy and respond to the global financial crisis that included a massive stimulus package.

The Chinese government says that these policies enabled the country to achieve another year of roughly 8 percent annual growth in its GDP and helped keep the economy stable. But that increase in the amount of money in circulation has triggered concerns about inflation. However, economists have also said that a sharp decrease in lending could jeopardize that growth.

"China should balance its bank lending next year, but the central bank statement shows that it not reduce it too sharply," said Guo Tianyong, an economist with the Central University of Finance and Economics. He forecast that the amount of new yuan lending next year may drop to between seven and 7.5 trillion yuan.

Guo also said that bank lending should be more even throughout the year. This year, for example, 80 percent of all new loans were extended in the first half of the year, in part because the authorities asked the banks to lend less in the second half of the year.

As a result, loans that would have otherwise been made this year will likely instead be made next year, resulting in an increase in lending in early 2010. In November, new lending was less than 300 billion yuan, far less than the more than 800 billion in new loans often given out in earlier months.

In addition, the PBOC, along with the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission, issued a statement today encouraging banks to support listed companies that are capable of conducting overseas mergers and acquisitions. The statement did not elaborate on that policy, however.

The statement also said that banks should encourage the development of private equity and venture capital funds, and support key sectors, including new energy, new materials, environmental protection, and the development of small enterprises.