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'No risk of deflation, loans to top 5t yuan in 2009'

By Diao Ying and Zheng Lifei (China Daily)
Updated: 2009-03-11 08:00

China's financial institutions are set to issue more than 5 trillion yuan in new loans and the country will not face any risk of deflation this year, a top central bank official said yesterday.

Related readings:  New lending may exceed 5 trillion yuan in 2009  Loans to SMEs account for 51.9% in 2008  Govt fillip to boost bank loans  China's Feb new yuan loans reach 1.1 trillion yuan

"The total lending this year will definitely exceed 5 trillion yuan," said Su Ning, deputy central bank governor, during the annual sessions of the parliamentary meeting and the advisory body meeting.

"The central bank could resort to adjustment of banks' reserves requirement, open market operations, interest rates and other instruments to increase the liquidity in the markets if it is under strain," Su said, without elaborating.

Premier Wen Jiabao said in his government work report that the country is setting a 5 trillion yuan new loan target this year.

Chinese banks issued 1.62 trillion yuan in new loans in January, surging 101 percent from a year earlier, the People's Bank of China, or the central bank, said last month.

The surge in lending is equal to about one-third of the loans extended in 2008, according to central bank figures.

"The new lending this year is very likely to exceed 6 trillion yuan," said Dong Xian'an, an economist at China's Southwest Securities.

"The combined lending in the first two months has amounted to 2.7 trillion yuan and I think the lending growth will continue to increase in the coming months," the economist said, estimating that new loans issued in February stood at 1.1 trillion yuan.

The central bank is likely to release the figures this week.

China aims for 17 percent growth in its broad money supply, or M2, Wen said in the report last week.

M2, which includes cash and all types of deposits, jumped 17.8 percent last year, higher than the 16 percent growth target set at the beginning of the year.

Su also said yesterday that the negative growth of the consumer price index (CPI) in February is not a sign that the economy has fallen into deflation.

"At present, the liquidity is sufficient and new lending is growing briskly. The economy is likely to rebound in the second half," Su said.

As a result, deflation, in which falling prices are accompanied by shrinking loans and money supply and an economic recession, "will not emerge in China this year", Su said.