Top Economists Point To Good News In The Weak Chinese Loan Data

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Photo: Feng Li/Getty Images

Despite the slowdown in China, the latest bank lending data suggests that Beijing hasn’t done enough to bolster the economy.But there is a bright side to the news.

First the data points:

  • New Loans in July declined to 540 billion yuan, down from 919.8 billion yuan in June.
  • Within new loans, new medium-to-long-term (MLT) loans to corporates fell to 92 billion yuan in July. form 163 billion. The share of MLT loans in new loans fell to 17 per cent, down from 17.7 per cent.
  • The broad M2 money supply growth inched higher to 13.9 per cent year-over-year (YoY), from 13.6 per cent in June.
  • M1 growth eased to 4.6 per cent YoY, down from 4.7 per cent.
  • Foreign currency deposits climbed 66.5 per cent YoY in July. 
  • Corporate bond issuance climbed to 248.7 billion yuan or 46.7 per cent of new bank lending.

Reactions

SocGen’s Wei Yao
Investors watch the loans number since they show the state of demand for credit. Yao writes that the Chinese central bank and the banking regulator are concerned about credit risk in the banking system, “and there is certainly justification for this as non-performing loan levels are rising”.

On the upside though, the rise in corporate bond financing however has been accelerating which shows policymakers are keeping their promise of deepening financial markets and increasing different sources of financing for corporates.

Bank of America’s Ting Lu
After weak trade date Lu writes that Beijing should be “more determined in boosting domestic demand” to offset declines in external demand.

But Lu wrote that this could in fact be good for markets since, China should now cut its reserve requirement ratio and could cut its interest rate. He also said this could prompt Beijing to ease lending restrictions on local government funding vehicles (LGFVs) and could ease the 75 per cent loan-to-deposit ratio level in smaller banks.

Finally and most importantly, Lu writes that the government should clarify that it won’t introduce stricter measures on home purchases and instead, “should consider encouraging increasing home supply in order to bolster growth and stabilise home prices”.

Xinhua
China’s state news agency Xinhua however said that this slowdown doesn’t necessarily mean a tightening of money supply and instead could be a seasonal decrease after a sharp increase in June.

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