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China loans rise could show government steps gain traction By Lucy Hornby and Langi Chiang BEIJING (Reuters) - China's bank lending in May rose more...

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China loans rise could show government steps gain traction By Lucy Hornby and Langi Chiang BEIJING (Reuters) - China's bank lending in May rose more than expected, suggesting fast-tracked infrastructure projects were creating loan demand and that measures to counter a sharpening economic slowdown may be taking affect. New loans figures followed a flurry of May data at the weekend, which reinforced the view China is heading for its sixth quarter in a row of slowing growth and helping to explain a surprise interest rate cut last week - Beijing's boldest action yet to underpin economic activity. The central bank said on Monday that banks issued more than 793 billion yuan ($124 billion) in fresh loans in May, up from 682 billion yuan in April and stronger than 720 billion yuan expected by financial markets. "The rise is due to monetary easing and, more importantly, the government's quickening approval for new investment projects," said He Yifeng, an economist at Hongyuan Securities in Beijing. Premier Wen Jiabao and other policymakers appeared to be jolted by dire economic figures for April, released a month ago. In recent weeks they have approved languishing investment projects and launched a number of reforms to allow private investment into sectors previously dominated by the state. Since November, the central bank has also cut banks' required reserves three times to feed cash into an economy feeling the chill from the euro area debt crisis. China's economic expansion is widely expected to dip below 8 percent year on year in the second quarter. He of Hongyuan Securities forecasts growth will be as low as 7.4 percent. That would mark the sixth straight quarter of lower growth and return the economy to the sort of pace seen during the trough of the global financial crisis in 2008/09. Full-year growth is expected to drop to 8.2 percent, the lowest level since 1999, a Reuters poll showed in May. The government has set a growth target of 7.5 percent for 2012. China is not alone in slowing down. India reported its weakest quarterly growth in nine years and Brazil almost stalled in the first quarter, raising doubts as to how much emerging markets can drive the world economy as industrialized nations struggle with debt.
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Thursday's quarter point rate cut briefly lifted financial market sentiment, although that gave way to suspicions that the timing of the reduction meant May's data would be worse than expected. Those suspicions were partly right. Domestic activity indicators suggested little pick up compared with April, while imports and exports were much stronger than expected. Industrial output picked up slightly from April to rise 9.6 percent from a year earlier. But that was below expectations. Retail sales were short of expectations, growing at their slowest pace since February 2011, and investment in the likes of real estate, infrastructure and factories increased at its weakest year-to-date pace in close to a decade. Consumer price inflation eased to 3.0 percent, below expectations and the lowest level since the middle of 2010. Producer prices fell 1.4 percent from a year ago, the third straight month of producer price deflation. "The slide in PPI. .. points to considerable sluggishness in domestic manufacturing activity," said Xianfang Ren, an economist at IHS Global in Beijing. But the surprisingly strong trade figures did little to lift confidence given Europe is mired in a widening debt crisis, which claimed Spain this weekend as the fourth country to seek financial support. "The trade situation is still relatively grim," China's Commerce Minister, Chen Deming, was paraphrased as saying by the official Xinhua news agency. "If lucky, we will be able to keep annual growth of around 10 percent. TRADE SURPRISE Imports gained 12.7 percent, more than double expectations, and well above April's 0.3 percent rise. A big surprise was a surge in copper imports, normally an indicator of economic activity. Three-month copper prices posted their biggest gain in two months after the data. Crude oil imports hit a record high of 6 million barrels a day. Exports rose 15.3 percent in May from a year earlier, more than double expectations, and up from April's 4.9 percent rise, leaving an $18.7 billion trade surplus, the biggest since January. A decline in the yuan against the dollar in May could possibly have helped exports, HSBC said in a client note.
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Answer to 1:
Discretionary fiscal policy: The deliberate manipulation of taxation, government purchases and
transfer payment to achieve macroeconomic goals such as economic growth, full employment...

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