Lending Spree Won't Wind Up Inflation: Expert

(Caixin Online) The unprecedented 7.5 trillion yuan of credit issued by Chinese banks will not cause a spike in inflation as consumer prices have been stable recently, said an economist at Peking University.

The consumer price index (CPI) slid to 1.5 percent in January from last December's 1.9 percent. Many economists expect the indicator to remain unchanged in February from the January level.

"The average CPI was 2.8 percent in the past six months and fell into the "mild" category," said Song Guoqing, professor of economics, adding that the shock released by the massive lending has been "largely absorbed by the economy."

He believed that high consumer prices last December, which were mainly caused by cold weather and rising export orders, did not mark a trend.

In 2009, China adopted a proactive fiscal policy and loose monetary policy to stimulate the economy, hit by weak global demand. Many government-backed infrastructure projects, including railways, highways and bridges, started across the country, replacing the export sector as a key driver of economic growth. In 2009, the economy grew at 8.5 percent, with the final quarter at 10 percent.

China's red-hot economy, against the backdrop of a global recession, has led to concerns over asset bubbles and inflation. China's real estate prices skyrocketed in almost all regions although official statistics indicated a less than 2 percent increase in housing prices.

As for the monetary policy, Song did not endorse the idea of a rise in interest rates, saying that a slight increase would only have a symbolic impact on the economy. He believed that 2.5 trillion yuan of new lending in the first quarter was reasonable and the future money supply needs to accommodate the needs of the real estate and export-manufacturing sectors.

According to a report released by the National School of Development at Peking University on February 27, China's gross domestic product growth in the first quarter is predicted to be 11.4 percent and exports up by 25.2 percent. Consumer consumption is also expected to increase by 2.4 percent.