Real economy gets impetus from buoyant credit growth

New loans for private businesses rise by nearly 20% during the first quarter

Credit growth has played a key role in stabilizing the real economy so far this year, while monetary policy will continue to lend support for the private sector over the rest of the year, analysts said.

"Basically all the recent financial data indicated that credit expansion has bolstered the real economy, rather than leading to major bubbles in property and stock markets," said Liu Chunsheng, an associate professor with the Central University of Finance and Economics in Beijing.

In the first quarter, new yuan loans reached 5.81 trillion yuan ($862.9 billion), up 19.6 percent, or 952.6 billion yuan, from the same period last year, according to the People's Bank of China. The 952.6 billion yuan increment was mainly made up by loans to the private sector, small and micro enterprises and other weak links of the economy, it said.

"Enterprises' mid to long-term loans have also seen a notable increase. Such loans are mainly used for expansion of business activity, instead of flowing into financial markets," Liu said.

In March, Chinese nonfinancial enterprises borrowed 657.3 billion yuan in mid to long-term loans, up by 42 percent year-on-year, data compiled by Shanghai-based information provider Wind Info showed.

Over the same period, signs of a stabilizing Chinese economy have showed, with industrial output, fixed-asset investment, exports and price levels all having picked up compared with the Jan-Feb period.

Monetary authorities' efforts to improve liquidity condition, in tandem with brighter market expectation brought by the tax cuts, have provided key support for the economy to accelerate stabilizing, said Liu.

The PBOC cut the reserve requirement ratio for financial institutions by 1 percentage point in January, which freed a net 800 billion yuan into the market.

"Looking ahead, credit expansion is likely to maintain a reasonable, steady speed this year, as the authorities continue growth stabilization efforts," said Xu Gao, chief economist at Everbright Securities Asset Management Co Ltd.

But the value of new loans for each of the remaining quarters should be less than the first one due to seasonal factors - that is, financial institutions usually issue more loans during the first few months of a year than other months, said Xu.

Xu also expected to see more positive changes in the country's lending structure, with private and small enterprises accounting for a higher proportion of the total value of new loans.

Xu made the remarks after the PBOC reiterated its unchanged prudent monetary policy of being "neither too loose nor too tight", aiming to maintain a credit growth "matching" the nominal GDP growth.

Moreover, the country has strengthened efforts to lower financing costs of small and micro enterprises, through a slew of measures including setting a lower reserve requirement ratio for small and medium-sized banks.

The country has set this year's goal for the five State-owned large commercial banks to increase outstanding loans to small and micro businesses by more than 30 percent year-on-year, while reducing their overall credit financing cost by 1 percentage point, officials said.

While the leverage of private, small enterprises will likely moderately rise, deleveraging moves targeting State-owned enterprises, local governments and the property market may accelerate, to achieve the country's goal of structural deleveraging, analysts said.