Chinese stocks rebound on central bank assurances

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China’s stock markets recovered modestly today after fears of tightening credit drove key indexes on Wednesday to their steepest losses in eight months.

Investors seemed appeased for the moment, after a top central bank official indicated that the government had no plans to suddenly corral the banking industry’s liberal lending policies.

The remarks, which were published on the People’s Bank of China website late Wednesday, appeared to be aimed at allaying worries that China’s economic rebound would slow.

‘We need to focus on using market means and utilizing various monetary policy tools, instead of setting lending quotas, to guide a reasonable and sustainable lending growth, satisfying the need of a stable economic recovery,’ said Su Ning, deputy governor of the central bank.

In a volatile session, the Shanghai composite stock index finished with a gain of 1.7%, to 3,321.56, after tumbling 5% on Wednesday.

The selling wave that hit the market followed a report in Caijing, an influential domestic business publication, that two of China’s largest banks -- China Construction Bank and the Industrial and Commercial Bank of China -- would rein in lending.

There has been growing concern in Beijing that much of the record $1.1 trillion in new bank loans this year has been funneled into the stock and real estate markets rather than the real economy. The Shanghai stock index was up 89% year to date through Tuesday as investors have piled into shares.

Ben Simpfendorfer, an economist for Royal Bank of Scotland, estimates that half of this year’s increase in credit has been used to buy equities, property and commodities.

However, he believes Beijing’s leadership will overlook the problem in favor of maintaining growth and thus employment. The bank lending spree had been encouraged by the government as part of its economic-stimulus program.

A lack of cash at some banks has driven up money market rates this week. But real credit tightening won’t occur until the fourth quarter, though worries will persist about it earlier, Simpfendorfer said.

-- David Pierson, reporting from Beijing