As required by the central bank, financial institutions must craft credit outlines in line with macro-economic controls and balance the credit coordination of the banks and clients with the overall interests of the macro-economy. Credit support must also be skewed toward small and medium-sized enterprises, independent innovation, energy conservation and environmental protection, and employment expansion. More efforts are also demanded to improve rural financial services and intensify investments to tackle the three issues concerning agriculture, countryside and farmers.

"Rational lending of the commercial banks is backed and encouraged by the central bank," said Yin.

Commercial banks are not supposed to put their own interests ahead of the general financial climate. All financial institutions are being called on to consolidate liquidity management, pay close heed to changes in the capital market, get an active handle on savings deposit diversion, prepare themselves for the liquidity changes at special moments like IPOs (initial public offerings) and prevent liquidity risk.

The central bank has also prodded financial institutions to beef up the transformation of their profit-making models. Amid cutthroat competition and the need for pressing credit tightening, the central bank is focusing on the innovation of the credit business, services and products. Improvement of profit sustainability will count on shrinking credit assets and expanding non-credit assets and non-interest income.

Meanwhile, controls over property credit were highlighted by the central bank, including enforcement of the property control policies, oversight over loan flows and prevention of new risks resulting from relaxation of lending requirements.

The Shanghai headquarters of the central bank also warned against changes in the external economic climate, especially the impact from economic turbulence in developed countries, on the export growth of China, and the performance of domestic exporters. Financial institutions should closely monitor the business of concerned enterprises, their repayment, as well as changes to the balance of payments and renminbi exchange rate. Enterprises are encouraged to strengthen risk management of the exchange rate with financial derivatives such as currency forwards.

"These requirements will bring about a more noticeable slowdown of direct lending," added Yin.

Financial Data

Money Supply

By the end of January, the outstanding balance of broad money supply (M2) totaled 41.78 trillion yuan ($5.8 trillion), up 18.94 percent year on year, 2.2 percentage points higher than the end of 2007. The narrow money supply (M1) recorded a balance of 15.49 trillion yuan ($2.2 trillion), representing a yearly increase of 20.72 percent, 0.33 percentage points lower than the end of 2007. The balance of money in market circulation amounted to 3.67 trillion yuan ($511.9 billion), up 31.21 percent over the previous year.

Renminbi loans

By the end of January, the outstanding balance of loans denominated in renminbi and foreign currencies of all financial institutions gained 17.53 percent to 28.67 trillion yuan ($4 trillion), among which renminbi loans contributed 26.97 trillion yuan ($3.8 trillion), a yearly rise of 16.74 percent, or 0.64 percentage points higher than at the end of 2007. January recorded a lending growth of 803.6 billion yuan ($112.1 billion), or 237.3 billion yuan ($33.1 billion) higher than one year earlier.

Renminbi deposits

By the end of January, the outstanding balance of deposits denominated in renminbi and foreign currencies of all financial institutions increased 13.96 percent to 40.25 trillion yuan ($5.6 trillion). The outstanding balance of renminbi deposits reached 39.16 trillion yuan ($5.5 trillion), posting an increase of 15.12 percent compared with one year earlier, 0.95 percentage points lower than the end of last year. Renminbi deposit increased 224.4 billion yuan ($31.3 billion) in the first month, 240 billion yuan ($33.5 billion) lower than the previous year.

(Source: January Financial Performance Report released by the People's Bank of China, on February 14, 2008)