China aims for $1.1 tn in loans

China is likely to set a target of at least 7 trillion yuan ($1.1 trillion) of new loans for 2011 after leaders met to decide key economic policy objectives for the coming year, said two people briefed on the matter.

The government also aims for 4 per cent inflation, 8 per cent economic growth and 16 per cent money supply expansion for next year, the people said, declining to be identified because the information isn’t public. The final target for new loans may be as high as 7.5 trillion yuan, one person said.

A quota of more than 7 trillion yuan would exceed estimates made by UBS AG and Bank of America Corp in the past month, suggesting the government may avoid stepping up a clampdown on lending. China moved to rein in credit this year after record loan growth in 2009 caused inflation to quicken and home prices to surge.

“This is a positive surprise to the market and is likely to trigger a rebound in banking valuations,” said Dorris Chen, a Shanghai-based analyst at BNP Paribas SA. “The economy needs this amount of credit to keep existing projects running instead of turning them into a pile of bad loans.”

China’s central bank has a target of 7.5 trillion yuan of new loans for 2010, a ceiling that was almost breached in the first 11 months of the year, and has forced banks to set aside more deposits as reserves three times in five weeks.

The central bank extended a temporary 50 basis point increase in the reserve requirement for some lenders by three months, two people briefed on the matter said today.