Central bank tocurb loans to sectors with overcapacity

Byswb

Updated 2010-01-06

Loan issuance to industries facing overcapacity must be strictly controlled to avoid credit risks, central bank governor Zhou Xiaochuan stated in comments published in the latest issue of China Finance, the central bank's semi-monthly magazine.

The country's 4 trillion yuan ($585.80 billion) stimulus package, rolled out in late 2008, helped launch many new projects in an effort to drive economic recovery. Currently, industries such as the conventional manufacturing sector and the infrastructure construction sector face overcapacity, which Zhou said calls for attention to ensure the safety and quality of bank credit.

Zhou's comments largely echoed the speech he gave at the China Finance Forum 2009 in Beijing December 22.

The central bank and three other commissions also jointly issued a paper late last month to stress the importance of pacing lending carefully to support the adjustment and promotion of key industries including automotive, while curbing some industries with overcapacity.

The National Development and Reform Commission, the country's top economic planner, emphasized its determination to curb overcapacity and redundant construction in industries including steel at a press conference in Beijing early last month.

The European Union Chamber of Commerce in China also released a report in November saying that many industrial sectors were suffering from overcapacity, with six industries including steel, cement and chemicals "severely affected" by overcapacity.

Sun Peng, a banking sector analyst with BOCI Securities, a subsidiary of the Bank of China (BOC), believes overcapacity won't pose a big challenge to bank lending this year, as the launch of new projects is strictly restrained and most ongoing projects are the result of last year's record near 10 trillion yuan ($1.46 trillion) in lending.

Banks have already taken into consideration the risks of lending to industries with overcapacity, Lu Zhengwei, a senior economist at the Industrial Bank, said. Banks will check borrowers' position in the market and the sustainability and profitability of projects money is being sought for, Lu added.

Zhou, the central bank governor, said mainly focusing on inflation is not enough. China's monetary policies are aimed at achieving multiple goals, rather than just a solitary effort to control inflation, he said.

Goals include maintaining low inflation, ensuring economic growth, keeping a relatively high employment rate, and securing the international balance of payments, Zhou said.

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