China's central bank will not loosen control over loan extensions despite complaints from local businesses about cash flow problems, said Governor Zhou Xiaochuan of the People's Bank of China. 

"We will not slacken restrictions on loan extensions, though commercial banks have reported a slightly smaller number of non-performing loans," Zhou said at the China International Conference in Finance 2004 held in the eastern commercial hub Shanghai.

The three-day meeting is sponsored by the Chinese Finance Studies Institute of the Beijing-based Tsinghua University, Sloan School of Business of the US Massachusetts Institute of Technology, and the Shanghai-based China-Europe International Business School.

Zhou said although many small and medium-sized businesses complain of difficulties in getting bank loans for operating funds, loans granted by commercial banks for that purpose already account for 70 percent of the country's gross domestic product.

"Compared with many other countries, the ratio of our bank loans for enterprises' operating funds is quite high, even in the rural areas, which is still a fledgling market for bank lending services, " he added.

Chinese companies, including the best-performing ones, should not underestimate loan risks, nor should they take it for granted that banks will give them circulating funds only because their products sell well, Zhou warned.

"Those beliefs are probably the last legacy left by the former planned economy," he added.

According to the central bank governor, only 17.22 percent of all the new short-term circulating fund loans extended in 2003 went to State-owned enterprises (SOE).

By the end of 2003, loans extended to SOEs as short-term operating funds accounted for 35.72 percent of incremented bank loans. The figure dropped to 34.11 percent by the first quarter this year.

"The percentage is quite close to the SOEs' 30 percent contribution to the country's gross domestic product," said Zhou.

The People's Bank of China said in a recent report that banks doled out a combined 113.2 billion yuan (US$13.6 billion) in renminbi-denominated loans in May this year, less than half of the figure for a year earlier.

(China Daily July 10, 2004)