Corporate Credit Demand Solid Despite Slowdown in New Loans

(Beijing) — China's total new loan growth fell sharply in July, but mid- to long-term corporate loans expanded and set a record, signaling solid credit demand by companies.

Banks extended 825.5 billion yuan ($123.7 billion) in new yuan loans last month, the lowest since November 2016. New loan issuance in July was down 46% from 1.54 trillion yuan in June but was still up by 361.9 billion yuan from July 2016, according to data reported Tuesday by the People's Bank of China.

The slower growth in new loans came as Chinese regulators step up efforts to deleverage the economy and contain debt risks.

Despite shrinking new loan issuance, mid- to long-term corporate loans added 433.2 billion yuan in July to a record for the month, according to China International Capital Corp., while short-term corporate loans recorded the first growth in nearly four years. Bank bill financing and loans to non-bank institutions both dropped.

Although local governments have tightened mortgage lending rules to cool the white-hot housing market, mid- to long-term household loans, mostly mortgages, increased 454.4 billion yuan in July, the third-highest monthly growth this year. Household mid- to long-term loans aren’t expected to pull back significantly soon, considering the still-hot Chinese real estate market, said Lian Ping, chief economist of the Bank of Communications.

Both household and corporate mid- to long-term loans are maintaining solid growth, showing stable credit demand, said Liu Dongliang, a senior analyst at China Merchants Bank. He said the strong credit demand has eased concerns about a slowdown in China’s economic growth.

Liu said he expected economic growth to remain stable or decline slightly in the third quarter. He said he expected the central bank to maintain its current neutral monetary policy.

The outstanding value of bank loans stood at 115.4 trillion yuan as of the end of last month, up 13.2% from the same point in 2016, according to the central bank. The outstanding total social financing, the PBOC’s measure of broader credit, increased by 12.4 trillion yuan in July and by 21.1% from a year ago.