Fall in long-term loans 'could hurt nation's economy'

A dramatic decline in new medium- and long-term loans by Chinese commercial lenders last year highlighted the insufficient financial support available to the real economy, which produces goods and services, analysts said.

Medium- and long-term loans refer to those maturing in more than one year. According to data released on Monday by the People's Bank of China, the central bank, such new loans in 2011 stood at 2.19 trillion yuan (US$347 billion).

The same category of new loans made throughout 2010 was 6.17 trillion yuan. In 2009, it reached 7.1 trillion yuan.

Liu Yuanchun, associate dean of the School of Economics at Renmin University of China, said the marked decline in medium- and long-term loans had bleak implications for the real economy.

Liu suggested that there were still considerable asset bubbles, as capital was more channeled into short-term lending. "Compared with medium- and long-term loans, risks in short-term lending tend to emerge sooner," Liu said.

Liu added that the decline in medium- and long-term loans did ease concerns over possible defaults involving local government debt.

Last year, senior officials at the China Banking Regulatory Commission highlighted three major sources of loan risk: government-backed loans to businesses, property loans and medium- and long-term lending.

As of Dec 31, commercial banks' outstanding loans to industry had reached 6.09 trillion yuan, up 9.3 percent year-on-year. The increase was 7.1 percentage points less than in 2010.

Outstanding loans to the service sector reached 14.92 trillion yuan, up 9 percent. The growth rate was 16.8 percentage points lower than in 2010.

Earlier this month, Premier Wen Jiabao urged the financial sector to do more to support entrepreneurs and industry amid slumping global demand and prevent virtual bubbles from inflating the economy. "The expected pull-back in economic activity is under way, exemplified by the third successive contraction in the HSBC Flash Purchasing Managers' Index for manufacturing. The cold front in advanced economies is enveloping China's economy," said Jeremy Stevens, economist at the Standard Bank Group.

Stevens said all data suggested that GDP growth would fall to a low of 7.3 percent in the first quarter, and a move to reduce reserve requirements for commercial lenders would occur soon after the Lunar New Year.

Wang Tao, head of China economic research at UBS Securities Co Ltd, said that recent good signs in Europe and the US indicated the deterioration in exports might not be as severe as she had thought.

"The economic slowdown in the first quarter probably will be better than our prediction, and the rebound spurred by policies in the second quarter may not be that obvious," she said.