Chinese banks extended a record 1.87 trillion yuan in new loans in March, anticipating a possible economic recovery, a source said.

"The growth is even stronger than January's 1.62 trillion yuan," the source told China Daily Tuesday. "The proportion of bill financing and other short-term loans has declined during the period."

"A strong loan growth is reasonable," Dong Xian'an, macro economy analyst with Southwest Securities said. "There are signs of further pickup in economic activity."

China's official Purchasing Managers' Index or PMI, a measure of activity in the manufacturing sector, rose to 52.4 in March from 49.0 in February, marking the first time the index has been in expansionary territory since September. A reading above 50 indicates expansion. Other economic indicators such as electricity consumption and shipping rates are also climbing, reflecting stronger business activity.

Commercial banks, facing declining interest rate spreads, also have a strong impetus to carve a larger slice of the loan market, Dong said. "Some of them may even do so to avoid a potential control on loan growth."

The central bank put in place a loan curb for commercial banks until last November, when it decided to prop loan growth to cushion the economic slowdown. Some analysts say the central bank may also resort to administrative measures to control loan growth, when inflation pressure rises once the economy recovers.

New yuan loans totaled 2.67 trillion yuan in the first two months, more than half of the government target of at least 5 trillion yuan for the whole of 2009. Zhang Jianhua, head of the research bureau at the country's central bank, said recently that China would persist with the "explosive growth" in new lending in March.

Dong estimated that China's total new yuan lending could reach 6 trillion yuan this year. China International Capital Corp said new loans could amount to 8 trillion yuan this year.

Lian Ping, chief economist with Bank of Communications, said the central bank was unlikely to curb credit growth in the short term, as it would deal a blow to investment sentiment.

Premier Wen Jiabao said in his government work report last month that the country's new yuan lending should exceed 5 trillion yuan this year.

(China Daily April 8, 2009)