The industrial-output number is “good news for the stock market because it shows that the government’s policies are working,”

TO BE NOTED: From Bloomberg:

"China’s New Lending Doubles, Helping Fuel Recovery (Update1)

By Bloomberg News

June 12 (Bloomberg) -- China’s new lending doubled in May from a year earlier, adding to a credit boom that is supporting the government’s 4 trillion yuan ($585 billion) stimulus plan.

New lending was 664.5 billion yuan, the central bank said on its Web site today. M2, the broadest measure of money supply, rose 25.7 percent.

The government is battling to overcome an export collapse by flooding the economy with money to fuel domestic demand. Fitch Ratings said last month that it’s “increasingly wary” of China’s banking industry as it expects an increase in bad debts, and the nation’s banking regulator has urged lenders to ensure they don’t loosen management of loans.

“Stimulus always is good for the economy in the short run but this may come with a cost for long-run prospects,” said Ha Jiming, chief China economist at China International Capital Corp. in Hong Kong.

The yuan was trading at 6.8329 against the dollar as of 9.33 a.m. in Shanghai, compared with 6.8348 at yesterday’s close. The Shanghai Composite Index fell 0.2 percent.

Domestic banks extended a record 5.83 trillion yuan of new loans in the first five months of 2009, almost triple the value of advances in the same period a year earlier. New lending in May was the second-lowest level this year.

More Confident

The confidence of Chinese bankers increased for the first time in nine months in the second quarter, the People’s Bank of China said in a statement on its Web site today.

An index tracking the confidence of 2,900 heads of financial institutions rose to 40 percent, up from 25.6 percent three months earlier.

A record 1.89 trillion yuan of loans in March highlighted concerns that banks may be lowering their lending standards. Besides the risk of bad debts, the credit boom may inflate asset prices and increase the likelihood of inflation making a comeback. The Shanghai Composite Index has climbed 54 percent this year.

Other signs of recovery include urban fixed-asset investment gaining the most in five years, surging property sales, and manufacturing expanding for a third month in May as the stimulus package spurred demand, data this week showed.

Exports plunged a record 26.4 percent last month and dragged economic growth to the weakest pace in almost 10 years in the first quarter. Consumer prices fell 1.4 percent in May from a year earlier even as money flooded into the economy.

“The strength of lending growth is good for the economy and good for the stock market in the short term,” said Paul Cavey, an economist with Macquarie Securities Ltd. in Hong Kong. “In the medium term, it’s bad for the banks and it’s bad for the economy.”

New lending may reach 8 trillion yuan in 2009, said Wang Tao, an economist with UBS AG in Beijing.

To contact the reporter on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net."

"China’s Industrial Output Rebounds, Aiding Recovery (Update1)

By Bloomberg News

June 12 (Bloomberg) -- China’s industrial production rebounded in May, adding to signs that the world’s third-biggest economy is recovering from its worst slump in almost a decade.

Output rose 8.9 percent from a year earlier, the statistics bureau said today, after gaining 7.3 percent in April. That was more than the 7.7 percent median estimate of 16 economists surveyed by Bloomberg News.

Surges in lending, investment and auto and property sales suggest Premier Wen Jiabao’s 4 trillion yuan ($586 billion) stimulus plan is working. Rising unemployment and a record drop in exports have added to the challenge of reviving economic growth from the weakest pace in almost a decade.

“A recovery is on track,” said Ha Jiming, chief China economist at China International Capital Corp. in Hong Kong. “The hope now is that stimulus spending can also help to pull up private-sector activity.”

Retail sales rose 15.2 percent, up from last month’s 14.8 percent, the statistics bureau said today. The economists’ median estimate was 15 percent.

The Shanghai Composite Index rose 0.3 percent as of 10:24 a.m. local time.

Today’s industrial production number compares with a collapse in output growth to 3.8 percent in January and February combined. In May last year, production rose 16 percent.

The Shanghai Composite Index has climbed 53.5 percent this year on optimism that company profits will revive as economic growth accelerates. Jiangxi Copper Co., the nation’s biggest producer of the metal, has soared 212 percent.

‘Policies Working’

The industrial-output number is “good news for the stock market because it shows that the government’s policies are working,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong.

The car industry is among the winners from government efforts to spur growth, as tax cuts and subsidies for buyers extend China’s lead over the U.S. as the world’s biggest auto market this year.

Beijing drivers, used to leaving showrooms with new cars on the same day, now have to wait about three weeks for a Hyundai Motor Co. Yuedong Elantra or as long as eight weeks for a Honda Motor Co. CR-V sport-utility vehicle.

Economic data released yesterday illustrated strength in the domestic economy and weakness in global demand.

Urban fixed-asset investment surged 32.9 percent through May from a year earlier as the government pumped money into railways, roads and low-cost housing. Property investment also picked up. In contrast, exports declined 26.4 percent in May, the most since data began in 1995.

To contact the reporters on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net"

China’s banking regulator is examining whether it needs to curb lending after new bank loans surged to a record in March

TO BE NOTED: From Bloomberg:

"China Loans, Money Supply Jump to Records on Stimulus (Update1)

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By Kevin Hamlin

April 11 (Bloomberg) -- China’s new lending surged more than sixfold from a year earlier to a record 1.89 trillion yuan ($277 billion) in March, adding to signs that growth in the world’s third-biggest economy is gathering pace.

M2, the broadest measure of money supply, grew 25.5 percent, the central bank said on its Web site today. That’s the fastest since Bloomberg began compiling data in 1998 and more than the 21.5 percent median estimate in a survey of 12 economists.

President Hu Jintao said April 1 that China’s 4 trillion yuan stimulus plan was taking effect, after urban fixed-asset investment surged 26.5 percent in the first two months. China’s lending boom contrasts with the struggle in the U.S. to rid banks of illiquid assets and efforts by central banks from Switzerland to Japan to unfreeze credit.

“China is unusual in that it has this incredible capacity to mobilize all its institutions -- central government, local governments and the entire banking system -- to boost government-influenced investments,” said Vikram Nehru, the World Bank’s Washington-based chief Asia economist.

China’s banks, which are mostly state-owned, have already met the bulk of the government’s target of at least 5 trillion yuan of new loans this year. Lending may top that level by as much as 3 trillion yuan, according to JPMorgan Chase & Co.

The explosion in credit since the central bank dropped lending restrictions in November prompted the nation’s banking regulator to warn this month that lenders face a “severe” challenge in managing their risks.

Hazard for Banks?

“The central bank had to ensure it did enough to reflate the economy,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong. “The question now is whether it has done more than is needed.”

A concentration of loans in infrastructure projects is a potential hazard for banks, China Banking Regulatory Commission Vice Chairman Jiang Dingzhi wrote in the April 1 edition of China Finance, a magazine affiliated with the central bank. Unusual growth in discounted bills, which are used for working capital and dilute banks’ lending profits, “deserves high attention,” Jiang said.

“The biggest dangers to China’s economy and financial system come from within, not from outside,” Jiang Zhenghua, former vice chairman of China’s parliamentary standing committee, said at a financial conference in Beijing today. “The biggest of these hidden dangers is the degree of bad loans in China.”

Not everyone agrees on the risks.

Loan Quality

China Merchants Bank Co., the nation’s fifth-largest by market value, said this week that providing money for infrastructure projects will improve the quality of its book by adding more medium- to long-term loans.

Besides the risk of bad loans, the credit boom may inflate asset prices and increase the likelihood of inflation making a comeback. The benchmark Shanghai Composite Index of stocks has climbed about 34 percent this year.

“Some of the money has gone to the property market, some to the stock market,” said Lai at Daiwa Research. “It is not what the central bank wants to see.”

Excessive loan growth may “lead to inflationary pressure in the medium term, exacerbate credit risk and could potentially contribute to higher volatility in the economy,” said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong.

Recovery Signs

Investment growth, a jump in vehicle sales and rising property transactions are among signs of a nascent recovery, according to the World Bank’s Nehru. Manufacturing expanded in March for the first time in six months, according to a government-backed index. Automobile sales rose to a record 1.08 million vehicles, the official Xinhua News Agency said.

“With loan growth rates exceeding official targets, bank regulators may urge more restraint, to guard against excessive liquidity,” Jing Ulrich, head of China equities at JPMorgan Chase & Co. in Hong Kong, wrote in a report today.

China’s banking regulator is examining whether it needs to curb lending after new bank loans surged to a record in March, the Shanghai Securities News reported on April 8, citing unidentified people.

Still, exports fell a record 25.7 percent in February, Chinese steel prices have dropped this year, and industries face “great difficulty,” according to Ou Xinqian, a vice minister of Industry and Information Technology.

Trade Surplus

China’s trade surplus shrank 45 percent to $62.5 billion in the first quarter, from $114.3 billion in the previous quarter. The country’s foreign-exchange reserves grew by the least in eight years to $1.9537 trillion, the central bank said today.

Economic growth cooled to 6.8 percent in the fourth quarter, the slowest pace in seven years. The first-quarter figure is due April 16.

Macquarie Securities Ltd. on April 8 raised its forecast for China’s growth this year by 1 percentage point to as much as 8 percent. China International Capital Corp. last week raised its estimate to as much as 8 percent from a previous forecast of 7.3 percent.

To contact the reporter on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net.

Last Updated: April 11, 2009 00:09 EDT "