China's new loans surge in June, raising inflation concerns

 BEIJING, July 12 (Xinhua) -- China's new yuan-denominated loans surged in June as the government moved to buoy 1 the slowing economy, raising concerns that fast credit growth will push up inflation.

June's new yuan-denominated loans rose by 285.9 billion yuan (about 45 billion U.S. dollars) year on year to 919.8 billion yuan, the People's Bank of China (PBOC), or the central bank, announced Thursday.
PBOC data showed that new yuan-denominated loans in June hit a three-month high after reaching 1.01 trillion yuan in March.
"Banks lent more because the government relaxed its grip on credit controls," said Peng Wensheng, chief economist 2 with China International Capital Corporation Ltd.
In the latest sign of credit easing, the central bank last week cut benchmark interest rates for the second time in a month. It had previously 3 lowered the reserve requirement ratio three times before the rate cut.
China's economy slowed to a nearly-three-year low of 8.1 percent in the first quarter, dampened by a self-directed slowdown in investment projects and lackluster exports.
Chinese customs announced weak foreign trade data on Tuesday, raising concerns that the world's second-largest economy is certain to have slowed further in the second quarter.
Premier 4 Wen Jiabao said Tuesday that stabilizing 5 economic growth is the most pressing matter currently facing China. He said policies and measures to stabilize 6 economic growth currently include boosting consumption, diversifying 7 exports and promoting investment.
PBOC data showed that M2, a broad measure of money supply that covers cash in circulation and all deposits, increased 13.6 percent year on year to 92.5 trillion yuan at the end of June.
The growth was faster than the 13.2-percent rate registered a month earlier, but lower than the 14-percent annual target set by the government for 2012.
Preliminary data showed that the country's social financing, a measure of funds raised by entities 8 in the real economy, totaled 7.78 trillion yuan in the first six months, 13.5 billion yuan more than that in the same period last year.
The narrow measure of money supply (M1), which covers cash in circulation plus demand deposits, climbed 4.7 percent year on year to 28.75 trillion yuan at the end of June. The rise was 1.2 percentage points higher than that of a month earlier.
"The government should take inflationary risks into consideration," said Lian Ping, chief economist with the Bank of Communications, adding that the country's inflation might pick up at the end of the year.
China's consumer price index (CPI), a main gauge 9 of inflation, eased to a 29-month low of 2.2 percent in June, according to data released Monday by the National Bureau of Statistics.
The bureau will update figures for China's gross domestic product for the second quarter on Friday. The GDP is widely expected to slow further to around 7.5 percent for a sixth straight quarterly moderation.
Peng said the low inflation level is giving the central bank ample room to further loosen monetary 10 policies.
Ba Shusong, an economist with the Development Research Center of the State Council, or China's cabinet, said China should take necessary measures to manage inflation expectations at a time when it is also loosening its monetary policy.
"China's huge monetary stimulation 11 plan after the financial crisis (in 2008) did bring about a 'V-shaped' recovery, but monetary expansion in other economies and the surging price of energy and other commodities directly caused China's higher-than-expected inflation," Ba said.
Lian said that it is highly probable that China's inflation will accelerate later this year, although inflation has eased to 29-month low.
The PBOC data also showed that the balance of China's foreign reserves stood at 3.24 trillion U.S. dollars by the end of June, down 65 billion U.S. dollars compared with the end of March.