June 29 (Bloomberg) -- Chinese new bank loans worth about an estimated 1.16 trillion yuan ($170 billion) were invested in the stock market in the first five months of this year, China Business News reported, citing a government economist.

That’s 20 percent of the 5.8 trillion yuan loans banks extended in the period, the Shanghai-based newspaper said, citing Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council.

Wei’s assistant said the economist is traveling and can’t be reached. She declined to give her name. Calls to the press offices of the China Banking Regulatory Commission and the China Securities Regulatory Commission weren’t answered.

China’s Shanghai Composite Index has rallied 61 percent this year, the world’s third-best performer, after plunging a record 65 percent in 2008. The nation’s property sales jumped 45.3 percent to 1 trillion yuan in the first five months, the statistics bureau said June 11, compared with a 19.5 percent decline for all of 2008.

Record lending after the central bank scrapped loan quotas in November last year is helping the economy to revive after the weakest growth in almost a decade.

Some new loans must have entered the nation’s stock and property markets in the first quarter, Cheng Siwei, former vice chairman of the standing committee of the National People’s Congress, said June 27.

Market Rebound

About 2.4 trillion yuan worth of bank loans were invested in projects in that quarter, Cheng said, leaving a further 2.18 trillion yuan in new loans of the total.

“Where did it go? It’s undeniable that a portion of the lending may have flowed into stock and real estate markets and triggered the rebound in these two markets,” the former official said at a financial forum in Ningbo city in eastern China.

A further 30 percent of the loans in the first five months may have been used for discounted bill financing, or short-term credits used to fund working capital needs, China Business News said today. These funds may help form a financial bubble, the newspaper cited Wei as saying, adding this is the economist’s personal view.

Peng Wensheng, an economist at Barclays Capital in Hong Kong, said that the rally in stocks and property was to be expected given the size of the stimulus spending.

“Some people are concerned about this so-called speculation but in reality with such a large monetary expansion if asset markets did not respond something must be wrong,” Peng said. “There’s a risk of a very excessive rally in the asset markets but we are not at that point yet.”

For Related News and Information: Stories on China Banks: TNI CHINA BNK <GO> Banking industry debt and equity monitor: BANK <GO> Stories on China economy: NI CHECO <GO>

Last Updated: June 29, 2009 01:15 EDT