* New loans 2nd highest ever at 2.03 trln yuan, nearly twice Dec
* Total social financing rises to 3.74 trln yuan
* Outstanding loan growth slowest since May 2005
* Central bank has signalled move to gradual policy tightening
* Tightening moves may be driving surge in shadow banking (adds total credit growth data, further details)
BEIJING, Feb 14 (Reuters) - Chinese banks extended 2.03 trillion yuan ($295.74 billion) in net new yuan loans in January, the second-highest monthly tally on record, even as the central bank tries to contain the risk from years of explosive growth in debt.
While less than analysts had expected, new lending last month was nearly double the 1.04 trillion yuan seen in December, indicating credit growth in the world’s second-largest economy remains robust after last year’s record pace.
New total social financing, a broader measure of credit to the economy, totaled 3.74 trillion yuan in January, also up sharply from December and higher than the same period last year.
Outstanding yuan loans grew at 12.6 percent by month-end on an annual basis, the slowest growth rate since May 2005. Analysts polled by Reuters had expected a rise of 13.4 percent.
Chinese banks usually “front load” loans early in the year after the government renews their credit quotas, competing fiercely to maintain market share and to lock in higher-quality borrowers as soon as possible.
But lending in December also was much stronger than expected, which some analysts attributed to corporate worries that authorities may pressure banks to slow credit growth this year while gradually raising borrowing costs.
The People’s Bank of China raised key short-term money rates in late January and early February, surprising markets and reinforcing a signal to borrowers that it is intent on reducing credit risks by moving to a tightening policy bias this year.
The rate increases followed media reports that the PBOC had advised banks to slow down or curtail lending amid speculation that January loans were unusually heavy.
Broad M2 money supply (M2) in January grew 11.3 percent from a year earlier, central bank data showed on Tuesday, meeting forecasts and unchanged from the previous month.
But a breakdown of the overall financing numbers appeared to indicate a surge in less-regulated shadow banking activity, possibly in response to the central bank’s tougher stance.
New trust loans nearly doubled to 317.5 billion yuan as companies turned to alternative sources of financing amid a downturn in the corporate bond market.
China’s debt to GDP ratio rose to 277 percent at the end of 2016 from 254 percent the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said in a recent note.
China has pledged reasonable credit growth this year after last year’s record 12.65 trillion yuan lending binge, but it could be a tough balancing act for a government that has for decades prioritised strong economic growth.
Higher interest rates could prod debt-laden firms into deleveraging, though at the risk of stunting economic activity. Similarly, overly aggressive moves to curtail asset bubbles and speculation could spark price slumps in housing and financial markets and fuel a spike in bad loans.
Analysts agree the central bank will move cautiously as it monitors the impact of each measure on growth, while sending a clear signal to lenders that it is intent on containing financial risks.
For now, market watchers do not expect more aggressive tightening, such as a hike in the benchmark policy lending rate.
“We think the PBoC has gradually shifted to a tightening bias and policy rates (such as the 7-day repo rate) are likely to gradually move higher this year,” economists at ANZ said in a research note after stronger-than-expected inflation data earlier in the day.
“However, we do not think the economy is solid enough to counter any broad tightening and policy makers should be careful in directing market expectations.”
ANZ senior China economist Betty Wang said that she expects the PBOC to raise the 7-day repo rate by another 15 basis points by the end of June as policymakers remain cautious.
To help cool the heated housing market, banks in some big Chinese cities already have started to lower discounts on lending rates for first-time home buyers, the China Securities Journal reported earlier this month.
Even as the central bank raised short-term rates in recent weeks, the increases were modest and it injected massive amounts of money into the financial system to ensure markets remained calm.
$1 = 6.8641 Chinese yuan renminbi Reporting by Beijing Monitoring Desk and Elias Glenn; Editing by Kim Coghill