By staff reporter Wen Xiu

(Caijing.com.cn) About 16 percent of mid to long-term bank loans, or 1.2 trillion yuan, extended in the first half may have been diverted to capital and real estate investment, a Bank of China analyst told Caijing Aug. 26.

Shi Lei, an analyst with the bank's financial market department, said the ratio of mid- and long-term loans to fixed assets investment fluctuated between 1.3 and 1.7 percent from 2006 to 2008, but fell 40 percent in the first half to 0.7 to 0.9.

"It's unlikely the money was deposited in banks to accumulate interest given the high lending rates attached to mid- and long-term loans," he added.

It was the analyst's own estimate and not the bank's official report.

Chinese banks extended a record 7.37 trillion yuan of new loans in the first half as the government pushed a relaxed monetary policy designed to stimulate credit growth and boost consumption.

New loans fell to 355.9 billion yuan in July from 1.53 trillion the previous month after the central bank and regulators introduced a series of measures to rein in lending on concerns of a rise in bad debt and possible inflation, as well as speculation funds may have been misallocated.

The National Audit Office said Aug. 20 it will conduct strict audits of policy banks and some state-owned banks to verify that loans extended in the first half were properly directed to economic stimulus projects.

Strong gains in the benchmark Shanghai Composite Index, which rose 61.5 percent in the first half, coupled with a 10 percent year-on-year rise in property investment to 1.45 trillion yuan, fuelled fears that a large portion of new loans may have been diverted to stock and property speculation.

Revenue generated by property transactions in the first six months rose 53 percent year-on-year to 1.58 trillion yuan, as commercial banks extended 538.1 billion yuan in real estate loans, up 32.6 percent year-on-year, according to the National Bureau of Statistics.

The central bank earlier ruled out quantitative controls on bank lending, and will instead fine-tune monetary policy via open market operations and the issue of central bank bills, amongst other measures.

Premier Wen Jiabao said in an Aug. 24 online statement that China will maintain its proactive fiscal policy and moderately loose monetary policy in order to steer the world's third-largest economy through the remainder of the global downturn.

1 yuan = 14 U.S. cents

Full article in Chinese: http://www.caijing.com.cn/2009-08-27/110229699.html