China stimulus pressure up as credit demand weakens

BEIJING • Pressure on Chinese officials to boost stimulus has ratcheted up after credit growth last month tumbled to the second-lowest amount this year, amid weak demand and seasonal factors.

Aggregate financing was 1.01 trillion yuan (S$198 billion) last month, against 2.26 trillion yuan in June, the People's Bank of China said on Monday. The median estimate of economists was 1.63 trillion yuan.

China's policymakers have shown little sign that they are contemplating more aggressive monetary stimulus as they remain focused on keeping a lid on debt and financial stability risks. As the trade war with the US dents confidence, economists say there is a rising need to loosen policy.

"The key constraint has become credit demand," said Mr Larry Hu, head of China economics at Macquarie Securities in Hong Kong. "In the coming months, credit growth would remain constrained by the lack of credit demand until stimulus has to go to Level-3, under which policymakers would artificially create credit demand through loosening shadow banking and property."

The drop was due, at least partly, to seasonal patterns, with July's credit growth usually slower than that in June. The only month this year with a lower total was February, when Chinese New Year fell.

New yuan loans to the real economy were 808.6 billion yuan last month, down by 477.5 billion yuan from a year earlier, according to the central bank.

"It reflects weak loan demand and tight credit conditions after the credit events in the regional banks," said Ms Michelle Lam, greater China economist at Societe Generale in Hong Kong. "With such a weak set of credit data, there is more pressure on policymakers to deliver more easing."

She said a step up in property tightening also likely weighed on lending.

The drop was due, at least partly, to seasonal patterns, with July's credit growth usually slower than that in June. The only month this year with a lower total was February, when Chinese New Year fell.

Financial institutions offered 1.06 trillion yuan of new loans in the month, versus a projected 1.28 trillion yuan, while banks' new yuan loans to non-financial enterprises was the lowest since last October. Broad M2 money supply grew 8.1 per cent from a year earlier, slower than in June.

Mr Hu said policymakers are pressuring banks to lend, but the banks are finding it hard to do so because of a lack of credit demand, and they are also worried about bad loans. So banks are dishing out short-term lending to fulfil quotas while minimising credit risks, but such lending "is neither significant nor sustainable", said Mr Hu.

Lending via shadow banking fell by 622.6 billion yuan last month on tighter property financing, the biggest contraction since June last year.

"It's worrying that the credit data, a key gauge of China's monetary policy, is weakening at a time when the trade and tech frictions with the US are escalating," said Mr Rob Subbaraman, head of global macro research at Nomura Holdings in Singapore.

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A version of this article appeared in the print edition of The Straits Times on August 14, 2019, with the headline 'China stimulus pressure up as credit demand weakens'. Print Edition | Subscribe