By Don Miller

China’s giant $585 billion (4 trillion yuan) economic stimulus package is showing signs of taking effect. Economists now project that China will be the likely leader of an elusive worldwide economic recovery.

Chinese banks heeded the government’s call to extend more credit to support the economy as they issued $237 billion (1.62 trillion yuan) in new loans in January, up a whopping 101% year-over-year, the People’s Bank of China said. The surge provides evidence that state-owned banks are heeding the government’s call to extend more credit to support the economy.

"The banks are fighting for the best projects in the government’s stimulus package,” Ha Jiming, chief economist of China International Capital Corp, told China Daily. "It’s not surprising to see that an array of the deals were sealed in the past month."

The massive jump in lending is equal to about one-third of the loans issued in all of 2008, prompting some economists to say the government might discontinue cutting interest rates.

"The bank lending figures are just a stunningly good piece of news for China," Glenn Maguire, chief Asian economist for Societe Generale (ADR: SCGLY) in Hong Kong, told Reuters.

Now, it looks like the lending is spurring China’s turnaround. According to the median estimates of 14 economists in a survey released Friday by Bloomberg News, the world’s third-biggest economy will expand 6.6% in the second quarter after slowing to 6.3% in the first quarter.

That growth will accelerate to 7.2% for the full year, according to Wang Qian, an economist with JPMorgan Chase & Co. (JPM) in Hong Kong. Stimulus spending will account for 3% of the total, she estimates.

"China looks set to be the first major economy to recover from the current global meltdown,” said Lu Ting, an economist with Merrill Lynch & Co. (MER) in Hong Kong told Bloomberg Asia.