Banks told to step up lending to push growth

China has told its banks to lend more in the rest of this year and relaxed enforcement of loan-to-deposit ratios to expand credit, sources said, as Beijing prepares to release data that could confirm the relentless slowing of its economy.

Figures on inflation, imports and fiscal spending in November have already undershot expectations since the People's Bank of China sprang a surprise interest rate cut on November 21, raising fears that the bid to boost lending could foreshadow more weak figures on industrial activity for the month, due today, and on lending, due in the next few days.

"I wouldn't be surprised by that at all," said Andrew Polk, resident economist for the Conference Board in Beijing. "It seems pretty clear activity is continuing to weaken throughout this fourth quarter."

Two sources with knowledge of the matter said China's central bank increased the annual new loan target to 10 trillion yuan (US$1.62 trillion) for 2014, up from what Chinese media have said was a previous target of 9.5 trillion yuan.

Banks have disbursed 8.23 trillion yuan of loans between January and October, so they will have to quicken the pace in the last two months if they are to meet the new target. If upcoming data also proves worse than expected, some analysts say the PBOC could cut banks' reserve requirement ratio as soon as this weekend, allowing them to further increase lending.

Bank lending is a crucial part of China's monetary policy as the government instructs commercial banks, most of which are directly or indirectly controlled by the state, how much to lend and when to lend each year.

The amount of new loans issued by Chinese banks fell by more than a third in October.

"If credit supply is increased, it will certainly help economic growth in the first quarter," said Chang Chun Hua, an economist at Nomura. "If this is true, it shows that the government is quite concerned about growth."

Shanghai Daily - Agencies