China’s loan appetite just got bigger

SHANGHAI: China’s outstanding bank loans surged 15.97% year-on-year in the first five months of the year, further stoking concerns about overheating in the economy.

In the first five months, newly added loans reached 2.1 trillion yuan ($265bn), almost accounting for the target for the entire year of 2.5 trillion yuan set by the central bank.

Chinese banks extended 209.4bn yuan in loans during May alone, nearly double that of the same month last year, the official Shanghai Securities News reported, citing sources.

Although the figure is lower than the 317.2bn yuan and 540.2bn yuan seen in April and March, new loans are certain to race past Beijing’s full-year target soon, deepening the economic overheating problems, it said.

The government has this year struggled to rein in excessive spending in real estate, roads, factory equipment and other fixed assets despite a slew of administrative measures to try and cool growth.

In the first four months of ’06, China’s urban fixed asset investment, which reflects money poured into major infrastructure projects, rose 29.6% to 1.8 trillion yuan ($225bn).

The figures compared with the government target of 18% fixed asset growth for ’06 as the economy galloped ahead at 10.2% in the first quarter. China’s central bank in April raised interest rates for the first time in 18 months, hiking the one-year benchmark lending rate by 27 basis points to 5.85%.

That was followed by stiffer controls on the property sector, with ramped up downpayments for home purchases and higher capital gains taxes, along with tighter restrictions.