New yuan loans down as property curbs bite

China weakens yuan-dollar rate

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.