MNI POLICY: China Bill Financing Surge Boosted Real Econ: PBOC

     BEIJING (MNI) - The People's Bank of China's responded to the latest

financial data showing both new loans and money aggregates hitting historical

highs in January. Their response is published on the front page of today's

Financial News, a newspaper run by the PBOC. These are the key points

     --The increase in bill financing in January has supported the real economy,

helping lower financing costs of SMEs, said the Monetary Policy Department at

the PBOC. Some of the bill financing had been used by companies to 'arbitrage'

between banks to pick up on rates, but noted this was only temporary as there

was little arbitrage opportunity with structured deposit interest rates

returning to a reasonable level, the PBOC said. Such comments were seen

combatting rumours that firms' arbitrage was the main driver boosting the latest

bill financing figure.

     --Premier Li Keqiang warned Wednesday that the rapid growth of billing

financing and short-term loans could lead to acts of arbitrage, funds circling

in the interbank market, and post a potentially new crisis, the government

website cited him saying during the State Council executive meeting.

     --The surge in January new loans is attributed to seasonal needs, financing

demands brought about by the contracting shadow banking sector, and banks'

response to the PBOC's requirement to expand lending to private and small

companies, the central bank said. New loans stood at CNY3.23 trillion, adding

CNY328.4 billion y/y.

     --The money aggregate grew by CNY3.05 trillion from December, adding

CNY1.56 trillion y/y. This is mainly due to the large gains in new loans, bond

financing, and commercial banks' credit expansion which reflects in the gain of

bill financing and the off-balance sheet banker's acceptance. Both increased by

CNY516 and CNY378.6 billion respectively, accounting for 19.3% of the money

aggregates growth, rising 13.5 percentage points y/y.

     - The current increase in monetary credit and social financing is basically

matched with nominal GDP growth, so excessive liquidity and credit is not being

used to spur growth, the PBOC said.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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