June 5, 2012 / 10:32 AM / 5 years ago

China May lending seen making a modest rebound

BEIJING (Reuters) - China's bank lending is likely to have picked up in May, albeit modestly, with government policies to fast-track infrastructure investment seen supporting demand for new loans, according to a Reuters poll.

The pick-up is, however, unlikely to allay worries about a slowdown in China's economic growth, with recent weak manufacturing data helping fuel speculation that the government will take more policy action.

Data on the weekend is expected to show Chinese inflation cooled further in May, factory output growth near three-year lows and exports making only a small seasonal rebound.

Local media have reported that the biggest banks appeared to have accelerated lending in the last week of May in response to the faster approval of infrastructure investment.

"The government has pushed forward infrastructure projects and social housing construction. We should also start to see medium to long term loans rising more visibly in May," Wang Tao, China economist at the UBS, wrote in a recent note to clients.

Investors will scrutinize the money and lending data to see how far Beijing has eased monetary settings to bolster its economy, which is currently on course to grow at the slowest pace since 1999.

"In the short-run, to gauge whether recent policy support will work or has started to work, we need to monitor the monthly economic data... of course, the most important ones are new bank lending and infrastructure investment," Wang added.

Recent steps to shore up China's economy have mainly concentrated on the fiscal side, ranging from subsidies for buying energy-saving home appliances to accelerating approval for infrastructure projects.

On the monetary policy front, China's central bank reduced the amount of cash banks must hold as reserves in three moves since last November, bringing the ratio down to 20 percent from a record high of 21.5 percent. Beijing has so far refrained from an outright interest rate cut.

Economists have forecast the central bank to cut the reserve requirement ratio by another 100 basis points this year but see no change in benchmark interest rates this year, a separate Reuters poll showed.

Reporting by Aileen Wang and Nick Edwards; Editing by Edwina Gibbs

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