$95 to $103 billion in loans expected in July

Chinese lenders are expected to extend new yuan loans of 600 to 650 billion yuan ($95.2 to 103 billion) in July, in contrast to June's figure of 920 billion, while the government is trying to loosen credit in a more prudent way, analysts said.

In the second half, monthly new yuan loans are expected to be somewhere between 500 and 600 billion yuan. Throughout the year, total new yuan lending is expected to be between 8 and 8.5 trillion yuan, said the Bank of Communications Co Ltd in a report.

"To avoid a rebound of inflation expectations and a sharp increase of property prices, the money supply growth should not be excessively accelerated," said E Yongjian, analyst at the bank.

The report said that in the second half, China's monetary policy will continue to remain prudent, as conditions for a substantial relaxation would not come into being. "The overall credit environment will not be too loose."

China's Big Four State-owned banks doubled their pace of lending in the first half of July from a month earlier, although total new lending in the month among commercial lenders is expected to fall by about a third to 650 billion yuan, the Shanghai Securities News reported earlier.

It said the surge in the big banks' lending — estimated at 50 billion yuan in the first half of the month — in large part reflects a pickup in borrowing by government-led investment programs.

According to data released by the central bank, new yuan lending increased for a second straight month in June to stand at 919.8 billion yuan.

Total lending was 793 billion yuan in May and 682 billion yuan in April.

"The loan structure, with more short-term and bill-financing rather than medium and longer-term loans, reflects a weakening of China's usual policy transmission mechanism from window guidance on bank credit to driving investment growth, in our view," said Chang Jian, a China economist with Barclays Bank PLC.

While the country is trying to expand credit again to support economic growth, banking regulators have expressed their concerns over the sustainability of the current scenario on several occasions.

"For China, the ratio of M2 to GDP has reached 180.6 percent, far exceeding the 60 percent in the United States, and the more than 100 percent in some European countries. This indicates that the room left for boosting the economy by means of injecting liquidity is very limited," wrote Yan Qingmin, assistant chairman of the China Banking Regulatory Commission in an article.

By the end of June, banks' outstanding loans were at 59.64 trillion yuan, up 16 percent year on year, the central bank figure showed.