Regulate new credit

Strict supervision should be imposed on the use of the newly-added credit, says an article in Beijing News. The following is an excerpt:

The central bank and other local banking regulatory agencies are reportedly conducting investigations on the use of newly-added loans. There is no clear evidence so far of the loans flowing into the stock market but regulators cannot rule out the possibility.

In January new bank loans hit a record 1.6 trillion yuan, thanks to a series of interest rate cuts and cancelled administrative restrictions.

It is hard to prevent bank loans from entering the stock market. Regulators can track the loans entering the accounts of companies but it is difficult to track how the money is used. Some companies resort to various measures and even fake business contracts to shift money into stocks.

Recent stock market performance suggests regulators' worries are not groundless. In the past two months the share prices of 200 companies doubled, some share prices even climbed to the same levels as they were when the Shanghai Composite Index was around 6,000 points.

Under the current economic situation many listed companies have suffered losses in their operations and cannot support such a dramatic price rise in their shares.

It is urgent to work out measures to ensure funds aimed at saving the economy from recession are not used in market speculation.

(China Daily 03/02/2009 page2)