China may raise the target for new loans for this year after lending between January and April totaled nearly half of the annual goal, which may complicate the central bank's monetary policy, according to an economist at the State Information Center.

The loan target may also have to be raised due to the need for funds for reconstruction work in Sichuan Province which was hit by an 8.0-magnitude earthquake on May 12.

In the first four months of the year, the amount of new loans hit 1.79 trillion yuan (US$255.71 billion), with 463.9 billion yuan lent in April. The People's Bank of China aims to cap this year's new loans under last year's level of 3.6 trillion yuan.

"The authority may have to adjust this year's target," said Gao Huiqing, of the SIC, at a forum yesterday. "And this could further complicate the central bank's monetary policy making."

In a bid to rein in the rapid rise in credit seen in 2007, the government has stuck to a tighter monetary stance so far this year by, for example, introducing measures which included raising bank reserve ratio and issuing central bank bills.

But new loans and growth in money supply unexpectedly accelerated last month, adding pressure on the central bank to prevent cash-fueled inflation which is already close to a 12-year high.

Zhou said the massive quake would require more lending to help reconstruction in the province, which would increase challenges to the central bank's macroeconomic control policies.

But the potential relaxation in lending control does not necessarily mean China would also ease its tight monetary policy.

"What's more important is the loan structure rather than the amount. It's okay if the increase in new loans doesn't flow to already overheated sectors," Asian Development Bank economist Zhuang Jian has said in remarks in the Shanghai Securities News. "The quota of new loans and the macro control issues should not be mixed up."

(Shanghai Daily May 28, 2008)