China Credit Growth Accelerates Though Real Demand Remains Weak
China’s recent monetary policy easing has shown some effect, but not enough to significantly lift credit growth.
China’s total social financing (TSF), a broad measure of credit and liquidity in the economy, grew by a net 2.27 trillion yuan ($320 billion) in September, higher than the net increase of 1.98 trillion yuan the month before and the year-ago growth of 2.21 trillion yuan, data from the People’s Bank of China (PBOC) showed Tuesday.
Last month, banks extended 1.69 trillion yuan in net new yuan loans, up 40% from August, recording the biggest September growth ever, according to the central bank data. Analysts polled by Caixin had expected 1.4 trillion yuan of new loans.
The increase was largely expected as lenders began to respond to regulators’ easing measures. The central bank in September cut the amount of cash that banks must hold as reserves for the third time this year, releasing 900 billion yuan of liquidity.
The increase in corporate medium- and long-term loans was in part related to debt swaps, indicating that real demand remained sluggish, said analysts at China International Capital Corp.
Economist at Capital Economics projected more-aggressive easing soon, such as rate cuts, but the impact may still be limited.
“Even with additional stimulus, any pick-up in credit growth is likely to remain smaller than during past easing rounds, given that wider credit spreads are keeping borrowing costs for lower-rated firms elevated and access to shadow financing remains restricted,” Julian Evans-Pritchard, senior China economist at Capital Economics, said in a research report.
The data showed that the shadow banking sector continued to contract. Entrusted loans fell by 2.1 billion yuan; trust loans declined by 67.2 billion yuan; and undiscounted bankers acceptances fell by 42.9 billion yuan.
The recent shift in credit allocation toward inefficient state-owned enterprises will dampen the impact of faster lending on economic growth, according to the Capital Economics’ report.
Businesses have reacted differently to the policy easing so far, according to interviews conducted by Caixin. An executive at a medium-sized auto parts manufacturer told Caixin that the financing situation has been relatively stable in 2019, with the amount of loans at about 60% of its credit line. An executive from an industrial company with annual revenue of 1 billion yuan said the company still faces difficulties obtaining loans, and a recent loan application was rejected after five months of review.
One notable change in the data is that the central bank added exchange-traded asset-backed securities issued by corporates to the data from September. Economists at Capital Economics said this change doesn’t materially alter the aggregate numbers.
Growth in property loans continued to decline. The balance of property loans increased 15.6% year-over-year to 43.3 trillion yuan as of the end of September, slowing for 14 consecutive months.
Broad M2 money supply in September grew 8.4% from a year earlier, up from growth of 8.2% in August and 8.3% a year earlier, the PBOC data showed.
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