China bank lending hits 7-month low as curbs bite
But analysts say easing in bank credit likely over fears of global slowdown
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But analysts say easing in bank credit likely over fears of global slowdown
Reuters
13 August 2011
China’s bank lending slowed more than expected last month to seven-month lows as Beijing kept a tight grip on monetary policy to quell near three-year-high inflation.
Money supply growth sank to six-year lows, but analysts predicted that tight monetary conditions may not hold in coming months as mounting risks of a global economic slowdown may prompt Beijing to loosen credit conditions.
‘July’s loan (data) is too low to be sustainable,’ said Xu Biao, an economist with China Merchants Bank in Shenzhen. ‘Without a doubt, some kind of an easing in bank credit will take place in coming months.’
Chinese banks made 492.6 billion yuan (S$93.4 billion) of loans in July, the People’s Bank of China said on its website yesterday, a pullback from 634 billion yuan lent in June. Economists had forecast lending of 550 billion yuan.
Bank lending is a focal point in China’s monetary policy as it is controlled by Beijing through loan quotas to manage economic growth and control price pressures.
To quell inflation before it stirs social discord, China’s central bank has been steadily tightening policy since October last year, when it kicked off the first of five interest rates rises.
However, worsening debt problems in the United States and Europe, China’s two biggest export markets, have led Beijing to signal it is ready to pause its tightening campaign.
‘It seems they are preparing the ground for something called directed easing,’ said Mr Stephen Green, an analyst at Standard Chartered Bank in Hong Kong. ‘The ambition is more credit for small and medium-sized enterprises.’
Underlining the tightness in the banking system, China’s broad M2 measure of money supply grew only 14.7 per cent last month, the weakest pace of growth seen since April 2005, and again missing forecasts for a 15.8 per cent growth.
And in a sign that banks may have artificially inflated their deposit bases in June to meet quarterly regulatory checks, data showed savers withdrew 669 billion yuan in deposits last month. That comes after new yuan deposits ballooned to 1.91 trillion yuan in June, when banks had competed to attract deposits to meet a 75 per cent loan-to-deposit ratio requirement.
All signs suggest China’s economy has endured months of tightening with resilience, and growth is only easing slightly.
Most analysts still believe the Chinese economy will grow between 8 per cent and 9 per cent this year and is not facing a hard landing.
Data earlier this week showed China’s value of exports hit record levels last month after US and European shipments proved surprisingly buoyant. That helped to keep inflation elevated at three-year highs of 3.5 per cent in July.
That said, tighter policy has inflicted its share of pain on businesses. China’s small and medium-sized firms, which account for 80 per cent of jobs in the country, have borne the brunt of that as Chinese banks shut them out of the loan market to cut their lending risks.
This has forced some smaller businesses to fold. Others have complained of having to turn to an informal loan market that charges exorbitant rates of as high as 60 per cent a year.
‘The reaction in the real economy continues to argue for easing of monetary policy in the rest of the year,’ said Jun Ma, an analyst at Deutsche Bank. ‘But by the fourth quarter, we are likely to see some easing in credit.’