Despite the indications of gathering economic momentum, Finance Minister Xie Xuren said China would stick to its pro-growth fiscal stance, warning that withdrawing stimulus spending too early could damage the economy.
New loans amounted to about 600 billion yuan ($88 billion) in the first week of January, nearly twice as much as the monthly average in the second half of 2009, banking sources said, confirming a media report earlier.
Corporate treasurers see tighter monetary policy down the road and as a result are front-loading their funding needs. That may only make officials move quicker to normalize policy, Isaac Meng, an economist with BNP Paribas in Beijing, said.
In terms of credit controls, our expectations for a hike in reserve requirements should be brought forward from the end of the first quarter, said Meng, who had penciled in loan growth of 800 billion yuan for all of January.
Inflation is heading to 3-4 percent in the next few months. It is no longer just expectations, it is becoming a reality, he said. China's consumer price index rose 0.6 percent in the year to November, which marked the first increase since January.
The lending news came a day after trade figures showed much stronger-than-expected growth in both imports and exports. The strong economic signs pushed up Asian stocks to a 17-month high on Monday and helped to lift oil prices to the highest level since October 2008.
China, long known as the factory floor of the world, also beefed up domestic consumption last year and became the world's largest auto market. Passenger car sales rose 52.9 percent to 10.3 million units in 2009, with sales surging 88.7 percent in December from a year earlier, the China Association of Automobile Manufacturers said.
GOVERNMENT SUPPORT TO REMAIN INTENSE
The record bank lending in 2009 fueled a mass of liquidity in the financial system.
Policymakers have been trying to remove excess cash and stamp out speculation in the property market, but have been wary of removing government support at the current stage of the economic recovery.
In 2010, active fiscal policies will continue, and this means we cannot weaken the intensity of fiscal support for economic development, avoiding the losses to our achievements that would come from an excessively early exit, Finance Minister Xie was quoted as saying by the official Xinhua news agency.
Policymakers will want to avoid triggering a stampede of firms looking to lock in low rates given expectations of tighter lending conditions later in the year.
As a result, they will be patient, said Ba Shusong, a senior research fellow at the Development Research Center, a think-tank under China's cabinet.
The government should be relatively tolerant in its response to the current credit surge to avoid the situation of 'the more the fear of tightening, the stronger the lending', said Ba, who is also chief economist for the China Banking Association.
BETS INCREASE ON MORE YUAN STRENGTH
Financial markets reflected bets Beijing would let the yuan, held steady against the dollar since the middle of 2008 to help the economy, rise in the face of inflation pressures.
Dealers on Monday priced in expectations in the offshore market for appreciation of as much as 3.7 percent in a year compared with 3.3 percent on Friday.
As the world hurtled into the financial crisis, Beijing produced a 4 trillion yuan stimulus package in late 2008 focused on generating more domestic demand.
These efforts appeared to be bearing fruit at a faster pace than many economists had expected, suggesting that officials may have to move relatively quickly to rein in lending and investment.
As the output gap is rapidly closing, the increasingly strong demand growth will likely add to inflationary pressures whether they are coming externally or domestically, said Yu Song and Helen Qiao, China economists at Goldman Sachs, in a note.
The output gap refers to the difference between an economy's real and potential growth. A narrowing gap increases the risk of rising prices, as capital and labor become scarce.
The trade figures on Sunday showed that imports in December jumped 55 percent to $112.3 billion from a year earlier. Exports grew 17.7 percent to $130.7 billion.
Sequential growth figures were robust, implying that the stunning year-on-year gains reflected strong momentum and not just the comparison with weak figures in December 2008.
Even after seasonal adjustments, month-on-month export growth in December was 5 percent and import growth 8.7 percent, China's customs administration figures showed.
(Reporting by Victoria Bi, Langi Chiang, Simon Rabinovitch and Jason Subler; Writing by Kevin Plumberg; Editing by Kazunori Takada)