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2009-03-14 | All chapters

China's Bank Lending Has Yet to Revive Economy
Terence Poon, Wall Street Journal, 13th March 2009

BEIJING -- Chinese banks in February kept up their explosive lending growth, but weak industrial-output data suggest the surge in credit hasn't translated into a strong pickup in real economic activity.

New yuan loans in February totaled 1.07 trillion yuan ($147 billion), according to data Thursday from the People's Bank of China.

The figure shows that, in contrast with the credit crunch in much of the rest of the world, China's banks have ample liquidity and continue to play a crucial role in Beijing's push to boost an economy where industry and exports are anemic.

Meanwhile, a 3.8% rise in industrial production in the first two months of the year fell short of some economists' expectations. In December, industrial output rose 5.7% from a year earlier.

Retail sales rose 15% in January and February to 2.008 trillion yuan, slowing from December's 19% rise. The government issued a two-month figure because the Lunar New Year holiday fell in February in 2008 and January in 2009. The slowdown was likely amplified by price drops, but still suggests softness in consumers' appetite at a time when the government is trying to boost domestic demand.

Thursday's data, together with Wednesday's news of a plunge in February exports and Tuesday's report of a 1.6% drop in China's consumer-price index in February, indicate that the government's stimulus measures -- while boosting loans and capital-expenditure investment -- have yet to make a strong impact in the fortunes of private companies and households.

The latest data put the economy in focus ahead of Premier Wen Jiabao's news conference at the closing of the National People's Congress on Friday, which will provide domestic and foreign reporters a rare opportunity to ask Mr. Wen directly about his outlook on the economy and the need for additional measures.

Throughout the annual legislative meeting, officials emphasized that the government stands ready to do more to support the economy if needed, but that for now it is waiting to gauge the impact of the policies it has already adopted.

Beijing has encouraged banks to free up credit to help revive the economy, and the surge in lending may discourage near-term rate cuts. Outstanding yuan loans at the end of February were up 24.17% from a year earlier, compared with the 21.3% growth at the end of January.

While the credit data are encouraging, it is still far from certain that the government's efforts will be enough to get private companies to invest again or to get consumers to spend more money -- the ultimate goal of China's four-trillion yuan stimulus plan introduced in November.

Meanwhile, Beijing said it has begun allowing local governments to approve certain foreign investments, in a move to ease foreign investment at a time when it has been declining sharply. Such investment has been vital for providing jobs and introducing new technology and management practices.

Under the new rules, which took effect last week, foreign businesses setting up an investment company with registered capital of less than $100 million will need to seek approval only from local commerce bureaus, the Ministry of Commerce said Thursday. China previously required both local and ministry-level approvals for foreign investments.

Local commerce bureaus have been given the authority to review plans by foreign-invested auto makers to expand production capacity and can approve deals by foreign companies to buy domestic firms in certain industries, where the deal value is less than $100 million.

The European Union Chamber of Commerce in China said it welcomed the relaxation of the rules.


To read MOFCOM's announcement on this policy, please click here.

To view the European Chamber's comment on this announcement, please click here.

Source: http://online.wsj.com/article/SB123682958534804499.html