Chinese banks extended 470.0 billion yuan ($73.6 billion) in new local currency loans in September, down from 548.5 billion yuan in August and below market expectations.
China's foreign exchange reserves, the world's largest stockpile, rose by $4.2 billion in the third quarter to $3.2 trillion, the central bank said on Friday.
KEY POINTS:
Median forecast for foreign exchange reserves at the end of September was $3.305 trillion.
Reserves rose by $47.8 billion in July, $17.2 billion in August and dropped by $60.8 billion in September.
Outstanding yuan loans rose 15.9 pct yr/yr (forecast 16.1 pct)
M2 money growth up 13.0 pct (forecast 13.8 pct)
Sept CPI up 6.1 pct yr/yr (f'cast 6.1 pct; Aug 6.2 pct)
Sept PPI up 6.5 pct yr/yr (f'cast 6.8 pct; Aug 7.3 pct)
QIU GAOQING, ECONOMIST, BANK OF COMMUNICATIONS, SHANGHAI
"M2 growth was slower than expected mainly because both deposit and lending growth slowed and less inflow of capital.
"The weakening of the euro against the dollar in the third quarter may have also curbed the nominal growth of Chinese forex reserves."
ZHANG ZHIWEI, CHIEF ECONOMIST AT NOMURA SECURITIES IN HONG KONG:
"The money and credit data last month are much lower than market expectations, indicating that the liquidity condition is relatively tight, which can also be seen from the cash strains faced by some enterprises.
"The M2 figure is somewhat distorted and excludes some non-bank loans, such as trust loans and shadow banking credit.
"In that case, we cannot say the central bank would relax its monetary stance just because of a lower-than-expected M2 figure.
"Instead, we think the central bank would maintain its current tightening monetary policy unchanged.
"China saw a surprisingly low growth in foreign exchange reserves in the third quarter, partly due to some valuation factors.
"We know that the euro is falling and dollar is strong, so the total incremental value of foreign exchange will be reduced when using the dollar to denominate the euro assets.
"The changing valuation of currencies is only a temporary factor and could not last for a long while, if the situation in the euro zone countries improves."
HU YUEXIAO, ECONOMIST, SHANGHAI SECURITIES, SHANGHAI:
"China's trade surplus has been narrowing in 2011.
"Global funds, which have bet on yuan appreciation are no longer channeling huge sums of money into China as global financial turbulence escalates.
"A divergence in the growth of money supply and credit expansion is mainly because of growing lending activities outside banks' balance sheets."
BANNY LAM, ECONOMIST, CCB INTERNATIONAL, HONG KONG:
"A narrower trade surplus and less foreign investment into China because of the credit crunch and slowing growth in developed economies are the main reasons for a slower accumulation in forex reserves.
"Particularly in September, there was a big drop in stock markets, global investors repatriated some money from emerging countries including China.
"But this is temporary."
DU ZHENGZHENG, ANALYST AT CHINA DEVELOPMENT BANK SECURITIES, BEIJING:
"All the money and credit data are much lower than the market consensus, showing Beijing's tightening policies have had a strong effect.
"I think the central bank could probably relax some control on credit to safeguard the economic growth, because an increase of 13 percent in the money supply is not strong enough to meet the real demand from the economy.
COMMENTARY ON INFLATION DATA: ALISTAIR THORNTON, ECONOMIST, IHS GLOBAL INSIGHT, BEIJING:
"The tightening of monetary policy and growth moderation have ensured that inflation is now in the retreat.
"Softer international commodity prices and easing demand from advanced economies should embed this trend into next year.
"However, the liquidity backlog and pressure from structural wage gains will ensure that inflation remains well above desired levels, narrowing the policy space available for loosening.
"Narrow policy space is available, though. RRR has become less necessary on account of easing capital inflow pressure, and will be the policy tool of choice when authorities signal a start to loosening.
"Interest rates would follow if growth deceleration picks up, but should lag RRRs and credit easing, given that real rates are stuck in negative territory.
"For the moment, we remain in policy stasis -- no more tightening, but no real loosening -- while Chinese authorities nervously eye developments in the euro zone."
GEORGE WORTHINGTON, CHIEF ECONOMIST, ASIA PACIFIC, IFR MARKETS
"As supply responds, food inflation should ease rapidly over the next six months and help pull overall inflation down to around 4 percent.
"While non-food inflation has quickened over the past year, it has been largely unchanged over the past six months, suggesting little danger of acceleration.
"The central bank may even see fit to ease policy before the end of the year, perhaps starting with cuts to very high reserve requirements, though it will be keen to keep a grip on lending growth.
"Rate cuts are unlikely to be on the agenda barring a renewed global slump given the relatively modest tightening on that front since the last crisis in 2008/09."
SHEN JIANGUANG, ECONOMIST, MIZUHO SECURITIES ASIA, HONG KONG:
"The PPI data showed imported inflation pressures are easing as global commodity prices dropped.
"Chinese inflation will see a fast downward trend in the fourth quarter, falling below 5 percent in December. We have a bumper grain harvest and pork prices have peaked.
"The data come as a relief to the Chinese government, which now faces a deadlock in policymaking. It will fine-tune policies in December.
"Right now, they are not sure that inflation is slowing just (based on) one month's number. The policy will be on hold for one or two more months.
"I don't think we need to worry about a possible rebound in inflation in the first quarter of 2012, if the government does not roll out a stimulus package the size of 2008. That is very unlikely.
"As the real deposit rate is still deeply negative, China has no room to cut interest rates. So a broad-based policy relaxation will start with a cut in banks' required reserves."
LI HUIYONG, ECONOMIST, SHENYIN & WANGUO SECURITIES, SHANGHAI:
"CPI and PPI are matching the market consensus, which suggests that inflation has peaked and is easing gradually.
"We forecast inflation to slow further to below 6 percent in October and could ease to below 5 percent as early as November.
"We think the full-year inflation may be about 5.5 percent. PPI is also expected to slow gradually.
"But given overall prices remain at a high level, unless there are looming risks of a sharp economic slowdown, or a hard landing, it is otherwise difficult to see a relaxation in monetary policy."
QIAO YONGYUAN, ANALYST, CEBM, SHANGHAI:
"The CPI cooled a bit, partly due to moderating non-food prices and slowing food prices.
"But the slowdown in CPI last month is not drastic enough to reduce inflationary expectations, and it is still too early to confirm an easing trend in price pressures.
"The central bank is more likely to keep its current monetary stance unchanged and will wait for data in coming months to judge the direction of policy."
WANG JIN, ANALYST, GUOTAI JUNAN SECURITIES, SHANGHAI:
"Both CPI and PPI in September are in line with market forecasts, easing from previous highs. That could lead the central bank to put policy tightening on hold.
"But since (prices) are still at a relatively high level, the central bank is unlikely to relax its monetary stance any time soon."
CHI SUN, ECONOMIST, NOMURA, HONG KONG:
"Policy will be on hold. We think inflation will slow gradually in coming months. This confirms that inflation peaked in July.
"We think the next move will be tightening (step) in the first quarter of next year. If the economy stabilizes, financial reforms will be restarted again."
LINKS:
For details, see the website of the National Bureau of Statistics at http://www.stats.gov.cn. There may be a delay before it publishes a statement on its website.
MARKET REACTION:
- The Shanghai stock market <.SSEC> pared early losses and was down 0.2 percent after the data. The yuan eased a shade from the mid-point set by the central bank to 6.3780 on the dollar.
BACKGROUND:
Lending and money growth have slowed steadily this year as the central bank steered monetary conditions back to normal after unleashing an extraordinary surge in bank credit in 2009 to counter the global financial crisis.
China's ballooning currency reserves are driven by solid trade surplus and foreign direct investment, and Beijing's buying of foreign currencies to hold down the yuan.
China has long pledged to diversify its reserves, but as much as 70 percent of the holdings are still invested in U.S. dollar assets, including U.S. Treasuries, according to analysts.
Since October 2010, Beijing has raised interest rates five times and banks' required reserves nine times.
China's economy has slowed under the weight of tightening and waning overseas demand, but not dramatically. Most analysts still expect the world's No. 2 economy to grow at least 9 percent this year.
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