By Kevin Yao and Liz Lee
BEIJING (Reuters) -China’s new bank loans rose less than expected in September, largely driven by seasonal factors that could mask underlying weak credit demand, as policymakers battle to reverse a prolonged property slump and curb industrial overcapacity.
September’s new loans stood at 1.29 trillion yuan ($181.06 billion), up from 590 billion yuan in August, according to Reuters calculations based on data from the People’s Bank of China (PBOC) on Wednesday.
But the figure fell short of 1.47 trillion yuan expected by analysts polled by Reuters, and 1.59 trillion yuan a year earlier. Lending in China typically picks up in September because of seasonal factors.
“September’s data confirms that the current credit cycle has passed its peak, and the growth rates of aggregate financing and M2 may continue to decline,” said Xing Zhaopeng, senior China strategist at ANZ.
“Pressure on GDP growth is increasing, so a reserve requirement ratio (RRR) cut is likely to be prioritised over an interest rate cut. Considering that maintaining exchange rate stability remains a key focus in the near term, December would be a more appropriate time for the PBOC to take action.”
Outstanding yuan loans rose 6.6% from a year earlier, a record low and down from 6.8% in August, against analysts’ expectations for growth to stay at 6.7%.
The central bank does not provide monthly breakdowns. Reuters calculated the September figures based on the bank’s January-September data, compared with the January-August figure.
Chinese banks, which are facing government pressure to offer cheaper loans or easier repayment terms to help struggling businesses, extended 14.75 trillion yuan in new loans in the first nine months of the year.
That was down about 8% from 16.02 trillion yuan in the corresponding period last year.
Household loans rose to 389 billion yuan from 30.3 billion a month prior, Reuters calculations showed. Corporate loans rose to 1.22 trillion yuan last month from 590 billion yuan in August.
LOSING STEAM
China’s economy has lost momentum in the past two quarters, with September manufacturing activity shrinking for a sixth straight month.
Deflationary pressures persist, with both consumer and producer prices falling again in September, supporting the case for more policy measures as a prolonged property market slump and trade tensions with the U.S. weigh on confidence.
While China’s export growth rebounded in September, renewed trade measures and tit-for-tat threats by Beijing and Washington have rekindled concerns about jobs and further deflation.
Tension between the world’s two largest economies intensified after China announced a major expansion of rare earth export controls last week and U.S. President Donald Trump threatened to raise tariffs on Chinese goods to 100% and tighten software export curbs from November 1.
Policymakers have refrained from launching major stimulus for fear of unleashing a stock market bubble that could end in a repeat of the 2015 crash.
MODEST POLICY EASING EXPECTED
In a bid to curb deflationary risks, the Chinese government launched a so-called “anti-involution” programme to curb overcapacity and cut-throat competition among firms.
To boost domestic consumption, Beijing announced interest subsidies on loans to households and businesses that took effect from September, economists said.
China also plans to deploy 500 billion yuan of policy-based financial tools to speed investment projects to support its slowing economy.
Broad M2 money supply grew 8.4% in August from a year earlier, the central bank data showed, below analysts’ forecast of 8.5% in a Reuters poll. M2 expanded 8.8% in August.
The narrower M1 money supply climbed 7.2% year-on-year, compared with 6.0% in August.
Outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, rose 8.7% year-on-year, slowing from August’s pace of 8.8%.
“While we’re expecting some incremental rate cuts over the coming year, deflation will keep real lending rates elevated, weighing on bank lending. The consumer loan subsidy scheme looks unlikely to do enough to outweigh that drag,” Capital Economics said in a note.
The supply of new government bonds is expected to dwindle, continuing to negatively affect TSF, after strong issuance earlier this year.
TSF includes off-balance-sheet forms of financing outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.
(Reporting by Kevin Yao and Liz Lee; Editing by Clarence Fernandez and Kim Coghill)
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