Anika Begay
A man counts 100 renminbi notes with the Chinese flag in the background.
Sheldon Cooper | SOPA Images | LightRocket | Getty Images
New bank loans in China fell to a 15-year low in July, in what some analysts saw as a sign of continued economic weakness. But others said investors “shouldn’t panic” as seasonality and regulations contributed to the unexpected slowdown.
New lending in the world’s second-largest economy amounted to just 260 billion yuan ($36.28 billion), down 88 percent from a year earlier and below expectations of 450 billion yuan.
Iris Tan, senior equity analyst at Morningstar, said the decline in loan growth in July was driven by weakening credit demand and spending by both businesses and households.
He noted that short-term household lending declined significantly, indicating continued weakness in both consumer confidence and spending. Tan said corporate lending continued to expand but at a slower pace, mainly driven by discounted banknotes.
However, factors other than economic weakness contributed to the decline in lending. Tan noted that the decline in short-term corporate lending was due to regulatory measures that prevent the “self-circulation” of money in the financial system.
This practice of “self-circulation,” he explained, refers to large corporations borrowing money at very low cost and depositing that money in a bank as high-yield structured deposits or deposit agreements, rather than as transactions or investments.
Jasmine Duan, senior investment strategist at RBC Wealth Management Asia, said: “The new loans have not gone into the real economy, they’ve gone into all this financial arbitrage, and we think with the PBOC… that’s why they keep saying we shouldn’t pay too much attention to overall loan growth, because in the past a lot of it hasn’t gone into the real economy.”
In a note on Tuesday, Nomura said there was “no sign” that the regulatory crackdown would end any time soon, adding that it continues “to expect weak credit growth in the coming months, especially for RMB loans.”
Therefore, Morningstar’s Tan said the market “should not panic” over sudden fluctuations in the monthly data, as July is typically a weak month for credit growth.
He stressed that compared to 2023, year-to-date bank lending growth remains broadly stable at 8.7%, from 8.8% in June.
“This is in line with the government’s guidelines to slow credit growth. We believe that slower but still reasonable credit growth is beneficial to banks as it reduces their capital consumption and lowers the risks of irrational price competition for new loan growth,” he said.
However, these factors do not negate the continued sluggishness of the Chinese economy. RBC’s Duan said the data suggests that both households and businesses still have a “relatively low” outlook on the Chinese economy.
“We believe that if the real estate market does not find a turning point and gradually stabilize, it will be difficult to see significant growth in loans,” he concluded.
