New loans for 2010 will stop today. Beijing is facing worst inflation of the decade, fears social unrest caused by rising food prices. For this reason, it is providing financial aid to the poor and trying to contain prices. Experts say it is not enough.

Beijing (AsiaNews/Agencies) – Chinese banks have reached the official lending target of RMB 7.5 trillion (US$ 1,125 trillion) set by the government. Fewer loans will be provided in order to contain rapidly rising inflation. Local sources said the Industrial & Commercial Bank of China, the Bank of China and the Agricultural Bank of China would only extend new loans as existing ones are repaid.

Domestic banks extended about RMB 6.9 trillion of new loans this year through October, according to central bank data. The lenders have made close to RMB 600 billion of new loans so far this month, the 21st Century Business Herald reported yesterday. That would bring the total for the year to RMB 7.5 trillion.

In November 2008, the government removed annual quotas on new loans to encourage lending. The goal then was to revive an economy reeling from the global financial crisis. New loans soared to a record RMB 9.6 trillion the following year. This fuelled property speculation, causing home prices to skyrocket and inflation to rise.

In recent months, the government has urged banks to limit their lending to slow inflation and avoid real estate bubbles. However, inflation in the mainland rose to 4.4 per cent in October, the fastest pace in ten years.

The central bank last month raised interest rates for the first time since 2007, and told banks to set aside more deposits as reserves, limiting their capacity to lend.

This month, inflation could reach 4.8 per cent year-on-year.

The Central Economic Work Conference, set to meet next month, will probably hike the government's annual inflation target to 4.0 per cent from 3.0 per cent this year.

China should return to a "normalised" monetary policy as quantitative easing in the US pumps cash into the world's fastest-growing economy and fuels price risks, said Zhang Jianhua, head of research at China’s central bank.

To avoid unrest from rising food prices (vegetables jumped 60 per cent in a year), the government ordered the sale of wheat, cooking oil and other food items at a discount. It also raised financial aid for poor families, but did not say by how much.

In Beijing, the city announced that it would give just RMB 100 in food subsidies to each of the capital's 223,000 low-income residents this month, Xinhua news agency reported.

Local governments in other areas are handing out subsidies and giving money to university cafeterias to keep meal prices stable.

Today the central government announced an anti-speculation operation, accusing speculators of raising prices unjustifiably on basic items.

Some observers note however that speculation is not the cause of higher food prices. The latter are instead the result of easy lending by banks and the billions pumped into the economy by the government during the financial meltdown.

Mainland authorities are very concerned that widespread dissatisfaction might lead to street protests, especially if other basic items are hit by rising prices.

Central authorities are also hard-pressed in getting local governments and other government agencies to cooperate.

For example, experts suggest that recent diesel shortages were caused in part by state-owned oil companies holding back supplies in hopes Beijing would raise retail prices in line with higher global crude costs.

• china
• beijing
• prices
• inflation
• banks
• lending
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• limits