China's bank lending drops by almost a third in January

Fear of inflation is keeping bank lending in check in a big way.

China’s banks remained stingy with their lending in January. Figures just released showed bank lending falling to US$117.3 billion in January, a 28% plunge year-on-year from US$163 billion. Analysts believe the drop was caused by an excessive caution about re-igniting inflation and the government’s excessively tight restrictions on credit.

The January figure, however, was 15% higher than the December loan total of US$101.8 billion. One analyst said it was the lowest December to January increase since 2007.

"It is hard to escape the feeling that the weakness of lending was at least partly a reflection of the slow pace at which policy is being eased," said Mark Williams, an economist at Capital Economics in London.

There is growing evidence that the world's second largest economy is slowing down as Eurozone woes and weakness in the United States hurts demand for Chinese exports, a key growth driver for China.

Regulators are inclined to give Chinese banks more time to meet tougher capital rules requirements.

The China Banking Regulatory Commission is expected to impose new capital supervision rules on banks from July 1, but not as strictly as has been expected. CBRC will most probably give banks a longer grace period to meet tougher capital requirements intended to limit credit risks.

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