Business and Finance

China’s new lending cooled in April, easing concern that banks are taking on too much risk in a credit boom after the government dropped restrictions on loans in November. Money supply rose by a record.

Lending was 591.8 billion yuan ($86.7 billion), the central bank said in a statement on its Web site today. The number is about a third of the record 1.89 trillion yuan in March. M2, the broadest measure of money supply, rose 26 percent from a year earlier.

Consumer prices fell 1.5 percent in April from a year earlier, the statistics bureau said today, making it easier for the government to maintain the “moderately loose” monetary policy that saw restrictions on banks’ loan volumes scrapped in November. China is yet to establish a stable economic recovery, with lending concentrated on government projects while small businesses lack cash, the central bank said last week.

“There were concerns about rising non-performing loans; those concerns will have eased,” said Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong. “If bank-loan growth continues to drop from here that would be a worry, but I don’t expect that.”

The Shanghai Composite Index closed 1.8 percent lower. The yuan was little changed at 6.8223 against the dollar as of 3:25 p.m. in Shanghai.

Investment, Exports

New yuan loans rose about 26 percent from a year earlier, according to the central bank’s statement. In comparison, lending surged six times in March.

Other data this week may show investment growth accelerated and a decline in exports moderated, strengthening a fledgling recovery in the world’s third-biggest economy. China is battling a global recession that dragged economic growth to 6.1 percent in the first quarter, the slowest pace in almost a decade, according to official data.

Urban fixed-asset investment grew 29.1 percent in the four months through April from a year earlier, according to the median estimate of 16 economists surveyed by Bloomberg News. That compares with a 28.6 percent gain in the first three months.

Exports may have dropped 15.3 percent last month, the smallest decline in four months. The government will release trade and investment figures tomorrow.

Gaining Speed

“The economy has gained speed heading into the current quarter,” said Wang Qian, an economist with JPMorgan Chase & Co online cash advance. in Hong Kong. “We expect it to strengthen further as policy stimulus kicks in more powerfully and the external environment gradually improves.”

That view contrasts with interest-rate swaps showing traders paring expectations for the speed of the recovery.

China’s consumer prices fell for a third month on lower costs for food and commodities. Producer prices plunged 6.6 percent, the most since Bloomberg data began in 1999. While lower prices may encourage consumer spending, the central bank is also on guard against entrenched deflation, where people delay purchases in the hope of better deals in the future.

“Downward pressure on consumer prices still exists,” Su Ning, a deputy governor of the People’s Bank of China, said in Shanghai today.

The stimulus package announced in November is taking effect and the economy is recovering, Su said.

Manufacturing Expands

Chinese manufacturing expanded in April for the first time in nine months, according to the CLSA China Purchasing Managers’ Index. A government-backed index also showed an expansion.

General Motors Corp., the biggest overseas automaker in China, said its sales in the country rose 50 percent last month to a record. Overall vehicle sales climbed 25 percent to a record 1.15 million units.

Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, increased its lending by 636.4 billion yuan in the first quarter, an amount greater than Vietnam’s annual gross domestic product.

Lenders face “severe” challenges in managing their risks, the banking regulator said last month.

“The size of lending in the first quarter was quite astonishing,” said Wang Tao, an economist at UBS AG in Beijing. “It takes time to digest that much money.”

Besides the risk of bad loans, the credit boom may inflate asset prices and increase the likelihood of inflation making a comeback. The Shanghai Composite Index has climbed about 42 percent this year.

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