China’s credit falls as banks cut loans
CHINA’S bank lending tumbled last month and money supply growth cooled, raising fears of a sharper slowdown in the economy and prompting some economists to urge the government to ratchet up stimulus measures, including cutting interest rates.
Chinese banks made a much less-than-expected 548.3 billion yuan (R987bn) worth of new loans in October, down 36 percent from September, central bank data showed on Friday.
The drop in credit came after some banks reported bad loans rose at their fastest clip in two years over the summer, while deposits shrank, limiting their ability to lend and highlighting growing strains on the financial system.
Wang Jun, a senior economist at China Centre for International Economic Exchanges, said the central bank should first consider cutting reserve requirement ratios (RRR) for all banks to encourage them to lend more, although cutting interest rates remained an option.
Broad M2 money supply rose 12.6 percent in October from a year earlier, trailing market expectations of 12.9 percent and the second slowest growth rate in two-anda-half years.
Other data last week showed that China’s economy lost further momentum in October, with factory growth dipping and investment growth hitting a near 13-year low as the property market continued to weaken.
The surprisingly weak credit data came despite the central bank’s recent injection of 770 billion yuan in threemonth loans into some banks via a “medium-term lending facility”.
Niu Li, an economist at the State Information Centre, said: “The central bank seems to be more inclined to use innovative tools to release liquidity, but such tools have limited effectiveness.”
Niu said either cutting interest rates or RRR should be policy options, given low inflation and high borrowing costs.
Despite a raft of stimulus measures earlier in the year, China’s annual growth slowed to 7.3 percent in the third quarter. – Reuters