New loans on the mainland surged at a record pace last month and money supply expanded fast as banks heeded Beijing's call to loosen lending to battle the economic slowdown. New loans swelled to 1.62 trillion yuan (HK$1.84 trillion), more than double the figure in January last year, while the growth of M2, a measure of cash and all deposits, was at 18.8 per cent from 17.8 per cent in December, the People's Bank of China said yesterday. The quick liquidity boost suggested by the figures may be enviable for any country grappling with the downturn. But there are concerns part of the funding did not go to areas Beijing most desires, and the robust loan growth may be unsustainable. 'China is the only economy in the world to see significant growth in credit to corporate and household sectors after September 2008, when the financial crisis worsened to a near collapse,' said Lu Ting, an economist at Merrill Lynch. Beijing dropped lending quotas and unveiled a 4 trillion yuan stimulus package in November to bolster the economy against the global downturn. Banks responded by raising lending targets and cherry-picked railways, roads, power grids and other infrastructure projects that promise stable returns. Last month, medium to long-term new loans to the corporate sector, the most relevant for fixed-asset investment, jumped to 522.9 billion yuan from 243 billion yuan in December and 160 billion yuan in November, the central bank said. These accounted for 35 per cent of the 1.5 trillion yuan in corporate loans. Short-term loans of 340.4 billion yuan represented 23 per cent of the total but 623.9 billion yuan in discounted bill financing took up a 42 per cent share. 'Both short-term and long-term lending are of benefit to the economy now,' Moody's.com economist Sherman Chan said, adding the former could help ease cash-flow shortages while the latter could finance projects to boost economic activity. But the discounted bill financing loans may be less useful in stimulating the economy. In this type of lending, a bank takes on a company's bill, guaranteed by a second bank to a buyer before it is due. It then credits the value of the bill, after a discount charge, to the customer's account. The robust bill financing business indicates banks are still cautious about directly making working-capital loans to corporates, especially to small and medium-sized enterprises. Some companies may have been engaging in interest rate arbitrage - earning higher rates on enterprise time deposits than cost of funds in the commercial bills market. At the end of last month, outstanding yuan loans stood at 31.99 trillion yuan, up 21.33 per cent year on year, while yuan deposits reached 48.16 trillion yuan, up 22.98 per cent, the central bank said. 'The continued surge in deposits is not a welcome sign, given China's goal to boost domestic demand,' Ms Chan said. Last month, household deposits rose 1.53 trillion yuan from December and corporate deposits grew 75.9 billion yuan, a reverse of last year's deposit drop of 182.7 billion yuan. The figures suggested residents were unwilling to boost spending and firms cut back on investment amid a grim business outlook, Ms Chan said. The loan growth was expected to normalise to percentages in the mid-teens by late this year, as the bigger lenders, having met 20 per cent of their full-year lending targets in the first month, were likely to be more mindful of loan default risks in the future, economists said.