Credit for real econ­omy stays strong in China

The Star Early Edition - - INTERNATIONAL - Stella Qiu and Kevin Yao

CHI­NESE lenders ex­tended more credit than ex­pected in June, as home lend­ing stayed buoy­ant while a clam­p­down on shadow fi­nanc­ing ac­tiv­i­ties forced banks to shift more loans on to their books.

Beijing has tight­ened the screws on fi­nan­cial risks due to an ex­plo­sive growth in debt, but has in­jected sub­stan­tial liq­uid­ity at times to avoid a crunch and main­tain sta­bil­ity.

The stronger-than-ex­pected loans sug­gest author­i­ties are keep­ing up sup­port for the real econ­omy, even as they tighten reg­u­la­tions to force banks to delever­age, said Nie Wen, an econ­o­mist at Hwabao Trust in Shang­hai. “The shadow bank­ing sec­tor is shrink­ing, but credit for the real econ­omy re­mains strong,” he said.

Chi­nese banks ex­tended 1.54 tril­lion yuan (R3.06trln) in net new yuan loans in June, well above an­a­lysts’ ex­pec­ta­tions of 1.2trln yuan, up from 1.11trln in May.

House­hold loans, mostly mort­gages, rose to 738.4 bil­lion yuan in June from 610.6bn yuan in May, ac­cord­ing to cal­cu­la­tions based on the cen­tral bank’s data.

House­hold loans ac­counted for 48 per­cent of to­tal new loans last month, down from 55 per­cent in May.

Broad M2 money sup­ply, which in­cludes de­mand de­posits and monies held in eas­ily ac­ces­si­ble ac­counts, grew 9.4 per­cent in June from a year ear­lier, slow­ing from 9.6 per­cent in May, data showed. Economists ex­pected 9.5 per­cent growth.

The slower M2 growth, the cen­tral bank said last month, could be a “new nor­mal” af­ter May’s read­ing fell to the slow­est since records be­gan in 1996, with an­a­lysts say­ing Beijing is hav­ing some suc­cess with fi­nan­cial delever­ag­ing.

Growth in out­stand­ing yuan loans was flat at 12.9 per­cent by month-end, al­though faster than fore­casts of 12.7 per­cent.

To­tal so­cial fi­nanc­ing, a broad mea­sure of credit and liq­uid­ity in the econ­omy, rose to 1.78trln yuan in June from 1.06trln yuan in May, the data showed.

The ef­fects of the gov­ern­ment’s multi-pronged crack­down are show­ing up in weak­ened off-bal­ance sheet fi­nanc­ing, or shadow bank­ing ac­tiv­ity.

Com­bined trust loans, en­trusted loans and undis­counted banker’s ac­cep­tances, which are com­mon forms of shadow bank­ing ac­tiv­ity, dipped to 428.8bn yuan in the sec­ond quar­ter from 2.05trln yuan in the first quar­ter, ac­cord­ing to cal­cu­la­tions.

Pol­icy in­sid­ers say that China’s cen­tral bank will very likely hold off on fur­ther mon­e­tary pol­icy tight­en­ing and could even slightly loosen its grip in com­ing months as a delever­ag­ing drive threat­ens eco­nomic growth and job cre­ation ahead of a lead­er­ship reshuf­fle

China’s banks ex­tended a record 12.65trln yuan in loans in 2016 as the gov­ern­ment en­cour­aged credit-fu­elled stim­u­lus to meet its eco­nomic growth tar­get.

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