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China's bank lending dips as authorities tighten policy | |
(40 minutes later) | |
China's banks extended fewer than expected new loans in May as the country kept up its efforts to rein in rising prices. | China's banks extended fewer than expected new loans in May as the country kept up its efforts to rein in rising prices. |
Chinese banks lent 551.6bn yuan ($85bn; £52bn) in new loans, compared with 739.6bn yuan in April, according to the People's Bank of China. | Chinese banks lent 551.6bn yuan ($85bn; £52bn) in new loans, compared with 739.6bn yuan in April, according to the People's Bank of China. |
Authorities have been trying to slow down lending in an attempt to rein in rising property prices and inflation. | Authorities have been trying to slow down lending in an attempt to rein in rising property prices and inflation. |
China is the world's second largest economy. | China is the world's second largest economy. |
"The lending growth last month is slower than market expectations, showing that tightening measures are biting," said E Yongjian of Bank of Communications in Shanghai. | "The lending growth last month is slower than market expectations, showing that tightening measures are biting," said E Yongjian of Bank of Communications in Shanghai. |
Lending spree | |
As the global financial crisis gripped the world, Chinese authorities set lending targets for banks in an attempt to provide capital to the markets to boost growth. | |
That saw the country's banks lend record amounts of money, issuing a combined 17.5tn yuan of new loans in 2009 and 2010. | |
However, analysts say that the affects of that policy are taking their toll on the banks. | |
"China has witnessed a long program of extending loans for the past two years," said Peter Hoflich of The Asian Banker. | |
"This can't go on for ever, the banks may even be running out of capital," he added. | |
Tightening measures | |
While the record lending spree contributed to the growth of the Chinese economy, it has also created problems. | |
Availability of cash saw investments into sectors like real estate surge, sending the property prices soaring. | |
The country has also had to deal with rising prices of food and other essential commodities. | |
Worried by the prospect of formation of asset bubbles and overheating of the economy, the government has tightened its policies in an attempt to slow down lending. | |
China's central bank has raised the amount of money that lenders must hold in reserve four times this year. | |
It has also asked banks to maintain better loan-to-deposit ratio making it difficult for banks to lend. | |
Analysts said that they expect the government to tighten its grip even further. | |
"We expect the tightening monetary stance to continue in the future, as curbing inflation remains the government's top priority," said Li Huiyong of Shenyin & Wanguo Securities. |
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