China's central bank may use a combination of measures to slow the expansion in credit including raising the reserve requirement ratio, and will also introduce rules on deposit insurance soon.

 

The People's Bank of China will push financial institutions to strengthen credit control, it said in its annual report, which is cited by the China Securities Journal, without giving specific steps.

 

A possible investment rebound may occur this year and trigger a possibility of a bigger jump in bad loans, and so pushing for an improved credit structure is urgent, the report said.

 

The central bank also highlighted concerns over price fluctuations, the introduction of deposit insurance rules and the slower growth in property loans.

 

The report triggered more chances that reserve requirement ratio may be raised by 0.5 to 1 percentage point from the current 7.5 percent to curb borrowing after China's credit had soared in the first four months.

 

New yuan-denominated lending rose to 317.2 billion yuan (US$39.6 million) in April, 175 billion yuan more than in the same period a year earlier, the central bank said.

 

The total value of outstanding loans nationwide topped 22.21 trillion yuan as at April 30, up nearly 15 percent from the year before.

 

Economists have expected the central government to impose measures such as increasing the reserve requirement ratio. The interest rate on lending was raised on April 28 to further cap the growing credit.

 

Chinese banks have approved more than half of the central bank's full-year target of 2.5 trillion yuan worth of loans. Chinese lenders approved 1.26 trillion yuan worth of loans during the first three months, a year-on-year rise of 70 percent.

 

The increasing credit triggered concerns from the central bank of a bigger bad loan exposure.

 

China will also boost the flexibility of the yuan and keep the exchange rate basically stable, the report said.

 

(Shanghai Daily May 23, 2006)