UPDATE 1-China credit, money, FX reserves growth slows

* New yuan loans 603.4 billion in June vs forecast 600 bln

* Yr/yr M2 growth slows to 18.5 pct vs forecast 18.7 pct

* Q2 FX reserves rise only $7.1 billion

BEIJING, July 11 (BestGrowthStock) – The pace of money and credit
growth in China slowed markedly in June as the central bank
steered its anti-crisis monetary policy back to normal, while
the country’s official currency reserves barely grew last
quarter.

Banks extended 603.4 billion yuan in net new local-currency
loans last month, in line with expectations, but down from
May’s 639.4 billion yuan and less than half of last June’s 1.53
trillion yuan, the People’s Bank of China said on Sunday.

As a result, year-on-year growth in the stock of
outstanding yuan loans fell to 18.2 percent at the end of June
from 21.5 percent in May and 33.8 percent as recently as
November.

“China’s efforts to avoid overheating since the end of last
year have restricted banks’ ability to extend loans to the
property sector as well as to investment vehicles backed by
local governments,” said Dong Xian’an, chief macro economist
with Industrial Securities in Beijing.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ ^ For more stories on the Chinese economy, click [ID:nECONCN] For a breakdown of China's money and loan data, [ID:nTOE66A00F] For a table of China's FX reserves [ID:nTOE66A00L] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ ^> The tightening of policy, following a record surge in
lending last year to cushion the global crisis, was reflected
in China’s money supply figures.

Annual growth in the closely watched M2 measure moderated
to 18.5 percent in June from 21.0 percent in May and 29.7
percent as recently as November. Economists had forecast a 18.7
percent rise.

Annual growth in the narrower M1 gauge, which excludes
savings deposits and so is a better barometer of imminent
spending intentions, fell to 24.6 percent in June from 29.9
percent in May. In November, the year-on-year growth rate was
34.6 percent.

Unlike many other Asian central banks, the PBOC has not
started to reverse the interest rate cuts it made in late 2008
to help the economy weather the global financial crisis.

Indeed, because of a weakening growth outlook, economists
have scaled back their expectations of how quickly China will
normalise policy, with a majority no longer projecting an
increase in borrowing costs this year.

Economists surveyed by Reuters last week said they do not
expect the first increase in benchmark lending until the second
quarter of 2011. [ID:nTOE66803W]

SMALL RISE IN RESERVES

Dong with Industrial Securities raised the prospect that
the PBOC could even take its foot off the monetary brakes soon
because the economy is cooling so fast.

He said seasonally adjusted import figures released on
Saturday showed that domestic demand was “freezing”.
[ID:nTOE66900E]

“To avoid a steep slowdown in growth, China will relax its
credit tightening in the third quarter,” he said.

Any easing would probably take the form of allowing banks
to loosen their rules on lending to property developers, home
buyers and local governments.

Because interest rates are so low compared with growth in
output and sales, the cost of a loan in China is much less of a
constraint than the availability of credit.

On that score, as Sunday’s figures show, the PBOC has been
actively reversing its ultra-loose policy stance to hit this
year’s annual credit quota of 7.5 trillion yuan, down from a
record 9.6 trillion yuan in 2009 — nearly 30 percent of GDP.

E Yongjian, an analyst with Bank of Communications, said
the PBOC was unlikely to loosen any time soon as credit growth
trends were in line with the central bank’s expectations.

“On the other hand, the possibility of an interest increase
has fallen significantly from earlier this year,” E said.

China’s foreign (Read more about foreign investment into China) exchange reserves, the largest stockpile in
the world, rose just $7.1 billion in the second quarter to
$2.4543 trillion at the end of June. The reserves rose $47.9
billion in the first quarter and $453.1 billion in all of 2009.

China’s massive build-up of reserves is commonly cited as
evidence by economists that the yuan, in the words of the
International Monetary Fund, is significantly undervalued.

Reserves rose $43.4 billion in April and $14.8 billion in
June but plunged $51 billion in May.

The PBOC gave no explanation for the changes. The net
increase was tiny next to the $41.2 billion trade surplus for
the second quarter.

Economists said the slump in the euro will have reduced the
dollar value of China’s euro-denominated assets, but other
factors could have been at play — including capital outflows
linked to demand for dollars due to the crisis of confidence in
the euro zone and diminished expectations of a yuan
revaluation.
(Reporting by Michael Wei, Langi Chiang and Emma
Graham-Harrison; Writing by Alan Wheatley; Editing by Jeremy
Laurence)

UPDATE 1-China credit, money, FX reserves growth slows