New yuan loans down as prop­erty curbs bite

China weak­ens yuan-dol­lar rate

Kuwait Times - - BUSINESS -

BEI­JING: Chi­nese banks ex­tended 651.3 bil­lion yuan ($95.56 bil­lion) in net new yuan loans in Oc­to­ber, be­low ex­pec­ta­tions and fall­ing sharply from Septem­ber as pol­i­cy­mak­ers pledged to prevent as­set bub­bles in the in­creas­ingly debt-fu­eled econ­omy. The Peo­ple’s Bank of China has been keep­ing pol­icy ac­com­moda­tive to spur growth - as ev­i­dent by record bank lend­ing so far this year - but it faces an up­hill bat­tle to di­vert money from the red-hot prop­erty mar­ket into the weak real econ­omy.

“The drop in new lend­ing last month was sea­sonal and does not re­flect a shift in broad credit growth, which was sta­ble in Oc­to­ber,” Ju­lian Evans-Pritchard at Cap­i­tal Eco­nom­ics said in a note. “This sta­bil­ity may not last, how­ever, and we ex­pect credit growth to de­cel­er­ate fur­ther in com­ing quar­ters.” An­a­lysts polled by Reuters had ex­pected new lend­ing to have fallen back to 700 bil­lion yuan from Septem­ber’s three­month high of 1.22 tril­lion yuan. New bank loans to­talled 10.8 tril­lion yuan in the first 10 months of the year - an all-time high, ac­cord­ing to Reuters cal­cu­la­tions based on cen­tral bank data.

Lend­ing has been driven heav­ily by ro­bust mort­gage growth as the hous­ing mar­ket booms, with banks in­creas­ing their ex­po­sure to the sec­tor to off­set a surge in non-per­form­ing loans in more slug­gish parts of the econ­omy. New house­hold loans, mostly mort­gages, fell to 433.1 bil­lion yuan in Oc­to­ber from 637 bil­lion yuan in Septem­ber, cen­tral bank data showed, sug­gest­ing de­mand for mort­gages is cool­ing af­ter a spate of steps by lo­cal gov­ern­ments to re­strict home pur­chases to cool soar­ing prices. The ra­tio of new house­hold loans to to­tal new loans rose to 66.5 per­cent from 52 per­cent in Septem­ber, the data showed. High­light­ing un­der­ly­ing weak­ness in the broader econ­omy, new medium- to longterm cor­po­rate loans fell sharply to 72.8 bil­lion yuan from 446.6 bil­lion yuan in Septem­ber. The cen­tral bank said this week that it will main­tain am­ple liq­uid­ity in the econ­omy while tak­ing steps to prevent as­set bub­bles, adding that the bal­ance be­tween sta­bil­is­ing growth and pre­vent­ing bub­bles has be­come more chal­leng­ing.

No Ba­sis for Tight­en­ing

China’s to­tal so­cial fi­nanc­ing (TSF), a broad mea­sure of credit and liq­uid­ity in the econ­omy, fell sharply to 896.3 bil­lion yuan in Oc­to­ber from 1.72 tril­lion yuan in Septem­ber. TSF in­cludes off-bal­ance sheet forms of fi­nanc­ing that ex­ist out­side the con­ven­tional bank lend­ing sys­tem, such as ini­tial pub­lic of­fers, loans from trust com­pa­nies and bond sales.

But broad M2 money sup­ply (M2) grew 11.6 per­cent from a year ear­lier, the strong­est in four months and slightly above fore­casts of 11.4 per­cent. “Liq­uid­ity in the in­ter­bank mar­ket has tight­ened some, but look­ing at M2 growth it is not that low, so I think over­all pol­icy is neu­tral. We can’t say there’s been tight­en­ing,” said Ma Xiaop­ing, HSBC econ­o­mist in Bei­jing. “There is still not a ba­sis for tight­en­ing, as the real econ­omy is still weak. It is too early for tight­en­ing.” China’s econ­omy ex­panded at a steady 6.7 per­cent in the third quar­ter and looks set to hit Bei­jing’s full-year tar­get, spurred by stronger gov­ern­ment spend­ing and the prop­erty frenzy that are adding to its grow­ing pile of debt. China’s over­all debt has jumped to more than 250 per­cent of GDP from 150 per­cent at the end of 2006, the kind of surge that in other coun­tries has re­sulted in a fi­nan­cial bust or sharp eco­nomic slow­down, an­a­lysts say.

M1 money sup­ply, which in­cludes cash and short-term de­posits, rose 23.9 per­cent in Oc­to­ber on-year ver­sus Septem­ber’s 24.7 per­cent rise. A widen­ing gap be­tween M1 and M2 growth has fu­elled con­cerns about a “liq­uid­ity trap” in the econ­omy where com­pa­nies re­main wary of in­vest­ing re­gard­less of how much stim­u­lus pol­i­cy­mak­ers pump into the sys­tem. The gap nar­rowed to 12.3 per­cent­age points in Oc­to­ber from 13.2 per­cent­age points in Septem­ber.

Ref­er­ence Rate

Sep­a­rately, China weak­ened the yuan’s ref­er­ence rate to beyond 6.8 to the dol­lar for the first time in more than six years yes­ter­day as the green­back re­bounded strongly, with an­a­lysts warn­ing the unit could drop fur­ther. The Peo­ple’s Bank of China set the value of the yuan - also known as the ren­minbi - at 6.8115 to the green­back, down 0.34 per­cent from Thurs­day’s fix­ing, ac­cord­ing to data from the For­eign Ex­change Trade Sys­tem. The dol­lar surged on Thurs­day, re­bound­ing strongly from steep losses ear­lier this week af­ter Don­ald Trump - whose sur­prise pres­i­den­tial win shocked the markets - gave a re­as­sur­ing speech to soothe wor­ried in­vestors. Yes­ter­day’s yuan fix is the lowest since Septem­ber 2010 and an an­a­lyst es­ti­mated it could still fall fur­ther. “It has a lot fur­ther to go! If Pres­i­dent Trump in­jects mas­sive fis­cal stim­u­lus and pro­tec­tion­ism then we will see a MUCH weaker CNY and CNH,” Michael Ev­ery, head of Asia-Pa­cific fi­nan­cial markets re­search at Rabo Bank, said in a writ­ten re­sponse to AFP, re­fer­ring to both the on­shore and off­shore yuan quotes.

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