China overshot its bank loan target in 2010 and finished the year with money growth still running too fast, underscoring the need for more decisive policy tightening to keep inflation in check.
At the same time, a record $199 billion surge in foreign exchange reserves in the fourth quarter pushed China’s stockpile, already the world’s biggest, to $2,5 trillion, highlighting that money streaming in from abroad was complicating policy efforts at home.
Chinese banks issued 7,95 trillion yuan ($1,2 trillion) in new loans last year, the central bank said on Tuesday, more than the 7,5 trillion yuan that the government wanted for the full year. The broad M2 measure of money supply grew 19,7%, also topping the official target of 17%.
“Lending is still excessive and China’s process of monetary normalisation has not finished yet,” said Wu Tujin, economist with Guosen Securities in Shenzhen. “That means China will still face high pressure from inflation and asset bubbles.”
More than just an economic issue, high-speed money and credit growth has become a political concern, helping propel Chinese consumer inflation to its fastest in more than two years.
Determined to rein in rising prices, a source of public discontent, the government declared late last year that it would shift to a tighter monetary policy stance.
Some effects of that could be seen in the data for the final month of the year.
Chinese banks extended 481 billion yuan in new loans in December, down from 564 billion yuan in November and the lowest in one year.
But the December figures also showed that the impact of policy tightening thus far has been less severe than the market had expected.
The median forecast of economists was for issuance of 380 billion yuan in new loans.
And the 19,7% in annual M2 growth was quicker than the 19,5% pace in November and far faster than the 18,9% increase expected by analysts.
“Lending was still very strong despite constant regulatory efforts to contain the pace. That shows there is robust demand for loans from the real economy,” said Ren Xianfang, economist with IHS Global Insight in Beijing.
“I expect January data will be even higher. That will prompt the Chinese authorities to take pre-emptive steps,” he said.
The People’s Bank of China raised interest rates twice last year and officially increased lenders’ required reserves six times.
Economists polled by Reuters expect two further increases of both interest rates and required reserves in the first half this year.
But the central bank yesterday allowed just a mild rise in auctioned bill yields and also mopped up liquidity through open-market operations, signalling that it will keep rates and reserve ratios stable until early February.
In another move to ease the build-up of cash in the economy, China will allow residents of the wealthy coastal city of Wenzhou to invest in select markets overseas, an experiment in liberalising the tightly controlled capital account.