New Yuan Loan Beyond Expectation in August

New yuan-denominated loans rose more than expected in August, giving further support to the recovery of the Chinese economy, according to data released by China's central bank on Tuesday.

New yuan loans stood at 711.3 billion yuan (US$115.24 billion) in August, 7.4 billion yuan more than a year ago, the People's Bank of China (PBOC) said.

The figure was up from 699.9 billion yuan in July, but down from the 860.5 billion yuan issued in June.

The August figure, which puts total new yuan loans at 6.49 trillion yuan for the past eight months, has exceeded market expectation of around 680 billion yuan.

The country's social financing, a measure of funds raised by entities in the real economy, also showed a prominent pick-up.

Last month, the country saw social financing nearly double the amount recorded in July to hit 1.57 trillion yuan, of which new yuan loans accounted for 45 percent, down from 86.5 percent in the previous month, indicating corporate fund-raising is improving.

With the government's prudence in boosting market liquidity, the credit supply is unlikely to see substantial expansion in the year, said Fu Bintao, a macroeconomic analyst at the Agricultural Bank of China.

The government has so far been reluctant to ease monetary policy or introduce massive stimulus packages, but emphasized more on pushing reforms to upgrade the economy's structure, although a cash shortage in June once spooked Chinese lenders.

Fu projected Chinese banks to issue 4 trillion yuan in total new yuan lending for the second half of this year, down from 5.1 trillion yuan in the first half.

PBOC data showed that two other important indicators, M2, a broad measure of money supply that covers cash in circulation and all deposits, and M1, a narrow measure of money supply covering cash in circulation plus demand deposits, also accelerated in August.

The M2 increased 14.7 percent year on year at the end of August, a rise of 0.2 percentage points from July, while the M1 expanded 9.9 percent, up from a 9.7-percent pace in July.

The encouraging credit data, which followed the release of a string of other better-than-expected economic readings, have further confirmed a stabilizing growth trend in the world's second-largest economy, with many economic institutions raising China's economic forecasts.

Manufacturing activity, export growth and consumer inflation all improved in August, which is expected to help stabilize China's macroeconomic environment.

Chu Jianfang, a CITIC Securities analyst, projects a 7.6-percent increase in third-quarter GDP, as he believes that investment projects approved earlier this year and structural tax reduction policies designed to reduce the burden of enterprises will continue to play a role. China's economy has been stuck in a protracted weak recovery, with second-quarter growth slowing to 7.5 percent from 7.7 percent in the first three months and 7.9 percent in the final quarter of 2012.

But the better-than-expected indicators are unlikely to swing the government's stance in stabilizing its macroeconomic control policies, said Fan Jianping, chief economist at the government think tank State Information Center.

"China's economic growth has stabilized at between 7 and 8 percent, which is a good time for restructuring the economy. I believe the government will enforce its opening-up and reform efforts," Fan said.