Economic Recovery in China

By Kevin Yao and Ella Cao

BEIJING (Reuters) – New bank lending in China increased in August, but fell short of expectations despite a significant rise from a 15-year low in July. The central bank is maintaining an accommodative policy and pledging more supportive measures for the fragile economic recovery.

Chinese banks extended 900 billion yuan ($126.86 billion) in new yuan loans for August, which is an increase of 246% from July, but less than analysts anticipated. Data released by the People's Bank of China (PBOC) revealed that analysts had predicted new yuan loans would reach 1.02 trillion yuan last month.

Analysts noted that both credit and bank loan growth slowed in August. Leah Fahy from Capital Economics commented that while government spending might boost the economy soon, there seems to be no significant rise in private credit demand.

The PBOC does not provide monthly breakdowns of the data, but the August figures were calculated based on earlier data. For the first eight months of the year, new yuan loans totaled 14.43 trillion yuan.

Loan Breakdown:
– Household loans, including mortgages, increased by 190 billion yuan in August after a contraction of 210 billion yuan in July.
– Corporate loans rose to 840 billion yuan from 130 billion yuan the previous month.

A senior central bank official reaffirmed the commitment to a supportive policy for economic recovery. Analysts expect further easing of policies from the PBOC, which has already reduced interest rates and increased liquidity this year.

Predictions for Policy Changes:
UBS analysts foresee a 10 basis point cut in the main policy rate and a 25 bps cut in the reserve requirement ratio (RRR) throughout the remainder of 2024.

President Xi Jinping emphasized the need for achieving national economic and social goals, with expectations growing for further measures to bolster economic recovery.

Due to weakening economic activity, many global brokerages have reduced their 2024 growth predictions for China below the government’s official target of around 5%.

Additional Financial Metrics:
– The broad M2 money supply increased by 6.3% year on year, slightly exceeding expectations.
– Outstanding yuan loans rose by 8.5% year on year in August, down from 8.7% in July.
– Total social financing (TSF) annual growth slowed to 8.1% in August, with a significant rise in TSF amounting to 3.03 trillion yuan for the month, surpassing analyst expectations.

($1 = 7.0945 Chinese yuan renminbi)