China’s New Lending Quickens, Money Supply Rises by Record

China’s new lending unexpectedly increased in August and money supply rose by a record, fueling the nation’s recovery from the slowest economic expansion in almost a decade.

Banks extended 410.4 billion yuan ($60.1 billion) of local- currency loans, up from 355.9 billion yuan in July and 271.54 billion yuan a year ago, the People’s Bank of China said today on its Web site. M2, the broadest measure of money supply, rose 28.53 percent, the bank also said.

Today’s figures may pose a dilemma for policy makers seeking to sustain the economic pick-up without stoking asset- price inflation, and follow a warning yesterday by Bank of China Ltd. Vice President Zhu Min about the danger of “bubbles” in stocks and real estate. Premier Wen Jiabao pledged yesterday to sustain stimulus measures to secure the recovery.

While credit expansion may help keep up growth, “you really don’t want the economy to overheat and create asset price bubbles,” said Sherman Chan, an economist at Moody’s Economy.com in Sydney.

The median estimate in a Bloomberg News survey of 9 economists was for 320 billion yuan of new loans.

Today’s report may encourage stock investors who sent China’s Shanghai Composite Index down as much as 23 percent last month from the peak this year on concern that the slowdown in credit would curtail industrial output and spending.

The index tumbled after a slump in new lending in July to less than a quarter of June’s 1.53 trillion yuan. The index pared the decline to 16 percent at the close yesterday. It remained up 61 percent for the year to date.

‘Moderately Loose’

Wen said yesterday at a conference in Dalian, in northeastern China, that the government will keep monetary policy “moderately loose” and fully implement stimulus spending as the world’s third-biggest economy rebounds.