China new bank lending picks up sharply in February

Bank lending in China ramped up significantly in February, in a positive sign for the economy, but some economists expected higher financing costs later in the year to eventually drag on growth.

New bank loans in Asia's largest economy shot higher to 2,030bn yuan last month, nearly doubling both January's 1,170bn of loans and forecasts for an increase of 950bn yuan.

Julian Evans-Pritchard at Capital Economics attributed the pick-up in loan growth to a continuing shift away from non-bank channels of financing.

February's gain helped so-called Total Social Financing, the People's Bank of China's gauge of broad credit, to maintain a steady pace of expansion at 12.8% year-on-year.

On a cautionary note, the credit growth figures may have received a small boost related to the Chinese Lunar New Year holidays, Evans-Pritchard said.

"Stepping back, there has been only a mild deceleration in overall credit in recent quarters despite tighter monetary policy.

"But over time, we expect that the increase in funding costs for banks will encourage them to raise lending rates for new borrowers and that overall credit growth will cool as a result in coming quarters which will eventually weigh on economic activity."