Faster credit supply boosts Q3 growth prospects BEIJING, Aug. 10 (Xinhua) -- The faster-than-expected growth in China's July credit supply has shown positive signs in how the country's real economy operates, boosting growth prospects for the third quarter, analysts said. Data from the country's central bank on Friday showed that China's new yuan-denominated loans in July stood at 699.9 billion yuan (113.49 billion U.S. dollars), 159.8 billion yuan more than a year ago. The figure has outstripped market expectations of about 600 billion yuan, said E Yongjian, a financial analyst with the Bank of Communications. Although the figure was down from 860.5 billion yuan in June, it was still at a high level. According to usual practices, new loan issuance would be controlled at around 600 billion yuan for each month coming into the third quarter," E said. Meanwhile, both M2, the broad measure of money supply that covers cash in circulation and all deposits, and M1, the narrow measure of money supply, which covers cash in circulation plus demand deposits, also showed faster growth last month, according to the figures. By the end of July, M2 increased 14.5 percent year on year, up from June's 14-percent pace, while M1 expanded 9.7 percent, up from the 9-percent growth last month. The government's recent support measures for construction on railways and urban infrastructure, shanty town renovation as well as environmental protection industries have boosted demand for loans. The fact that banks were capable of releasing more loans after a recent money crunch has shored up credit supplies, macroeconomic analysts said. In June, Chinese lenders were hit by a severe cash shortage crisis, as indicated by a surge in the Shanghai Interbank Offered Rate overnight rate, a basic gauge of interbank borrowing costs, to a historic high of 13.44 percent on June 20. "The acceleration in the country's credit supply showed that authorities have loosened controls over lending after the crisis, underlying the government's intention to stabilize growth," said Guan Qingyou, an analyst at Minsheng Securities' research institute. China's economy has been stuck in a protracted weak recovery, easing to 7.5-percent growth in the second quarter from 7.7 percent in the first three months and 7.9 percent in the final quarter of 2012. "The credit supply increase points to a consolidating growth trend in the third quarter," Guan said. Changes in July's lending structure also revealed positive signs. Of last month's lending, the amount in newly-released short-term loans for non-residential clients significantly dropped, while that for non-residential medium and long-term borrowing increased. "The expansion in medium and long-term loans is a sign for a stabilizing real economy," E said. The trend is also reflected by other indicators. According to official data, the purchasing managers' index for the country's manufacturing sector rose to 50.3 percent in July from 50.1 percent in June, implying improving factory production. A reading above 50 percent indicates expansion, while one below shows contraction. However, there are worries that the economy may head in the opposite direction, as the country's social financing, a measure of funds raised by entities in the real economy, declined to 808.8 billion yuan in July, the lowest level in 21 months, which means weak growth strength in the real economy. Analysts believed that the easing expectation on the yuan's appreciation and tighter supervision over financing after the cash shortage crisis has caused the drop. The government has issued a raft of measures such as lifting caps on banks' lending rates and requiring more transparency in transactions in bond markets in an effort to channel reform in the country's financial sector. But given the 14.5-percent growth in M2, which is higher than the government-set expansion target of 13 percent for the year, Guan said room for further relaxation in the country's monetary policy is limited, while more tightening is also unlikely. Authorities will maintain a prudent monetary policy and refrain from using the monetary tools of interest rates and banks' reserve ratio in the second half of the year. With forex funds remaining depressed, reverse repurchases of central bank bills will be a main method to inject liquidity," said E. A statement released Sunday after a meeting of bank heads under the country's central bank said that major economic indicators were within reasonable range, adding that the country's economic restructuring and transformation has made progress.