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WRAPUP 1-China policymakers soothe credit tightening fears

Published 08/12/2009, 10:26 AM
Updated 08/12/2009, 10:33 AM
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* Top officials suggest China tightening fears overdone

* China c.bank monetary fine-tuning is "nothing new"-Zhou

* July bank lending, despite drop, is "not small"-Liu

By Zhou Xin and Alan Wheatley

BEIJING, Aug 12 (Reuters) - A trio of top Chinese policymakers teamed up on Wednesday to reassure jittery markets that Beijing is not engaged in a new clampdown on money and credit and that its all-important export sector is over the worst.

Investors reacted moodily on Tuesday to unexpected softness in Chinese industrial output and investment data for July, which they attributed to a plunge in new bank lending presumed to have been ordered by regulators worried about incipient asset bubbles.

Shanghai's main stock index <.SSEC> fell another 4.66 percent on Wednesday on fears that adjustments to the central bank's "appropriately loose" monetary policy will mean less money flowing into stocks.

But Zhou Xiaochuan, governor of the People's Bank of China, said the central bank's recent recourse to the phrase "dynamic fine-tuning" to describe its stance did not mark a departure.

"We have been talking this for over a decade. There is nothing new," Zhou told two reporters on the sidelines of a presentation by officials from Jiangsu province. markets globally.

China has been an engine of global growth over the past decade and financial markets hope its recovery can help haul the world economy out of the current downturn. Concerns that China could tighten policy, as such, have worried stock markets globally.

China's chief banking regulator, who also attended the conference, also had soothing words to say about a drop in new bank loans in July to 355.9 billion yuan from 1.53 trillion yuan in June.

"400 billion yuan. That's not small," said Liu Mingkang, chairman of the China Banking Regulatory Commission. "It is not small," he repeated for emphasis.

MURKY FIGURES

Lending in the first six months surged to a record 7.37 trillion yuan, or almost 25 percent of annual GDP, as China's mainly state-owned banks responded with gusto to the government's call to help finance its 4 trillion yuan ($585 billion) infrastructure-focused stimulus package.

July's new-loan total was thus well down on the monthly average of 1.23 trillion yuan for the first half but it was close to the average of 409 billion yuan lent out each month last year.

Moreover, the monthly figures represent net lending.

July's total was depressed by the maturing of 198 billion yuan in short-term discounted bills and 58.1 billion in other short-term loans.

Corporations, desperate to secure working capital, ramped up bill discounting at the start of the year to take advantage of favourable borrowing rates.

Banks, for their part, were keen to heed the government's call to lend, especially as they were swamped with liquidity and the loans were backed by relatively safe trade receivables.

As such, the roll-off of discounted bills should be seen as a normalisation of lending patterns, economists at Morgan Stanley said. "This slowdown in loan growth, therefore, should not be interpreted as policy tightening," they said in a note.

As the discounted bills mature, banks are instead extending more higher-yielding normal loans to support investment.

Tao Wang with UBS noted that new loans to the corporate and household sectors, excluding bills, reached 550 billion yuan in July, similar to that in May and higher than in April.

What's more, Chinese banks typically frontload lending in the first half, just in case regulators impose credit quotas later in the year, so a lower total in July was always on the cards.

"We do not think the slowdown in new bank lending will lead to a sharp drop in GDP growth," Wang said in a report.

EXPORT REVIVAL

GDP expanded 7.9 percent in the second quarter from a year earlier -- and at a 14.9 percent annualised rate compared with the first quarter -- as the government's pump-priming offset a slump in Chinese exports caused by a collapse in external demand.

Tuesday's investment and factory output figures suggested that the boost from the initial wave of government infrastructure projects was fading, unsettling markets counting on strong Chinese demand for commodities and other raw materials.

But Commerce Minister Chen Deming said China can now start counting on a revival of exports to help growth.

Exports were still likely to fall for 2008 as a whole, but the worst of the year-on-year declines was over, he said. "I believe this bottoming out process will be unbalanced and choppy, and we are already in the midst of it," Chen told reporters.

Exports fell 23.0 percent in July from a year earlier, and imports were down 14.9 percent, the government said on Tuesday.

However, after adjusting for the number of working days, exports rose 5.2 percent from June and imports rose 3.5 percent.

Huang Guohua, director of international trade statistics analysis at the customs administration, said exports for all of 2009 were likely to post a double-digit decline.

But he told a business group that he expected a significant improvement in the fourth quarter and exports in December might be flat or higher than in the same month last year. (Additional reporting by Aileen Wang and Lucy Hornby; editing by Patrick Graham)

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