New Bank Lending in China Falls Short of Expectations

By Kevin Yao and Liz Lee
BEIJING (Reuters) – New bank lending in China fell more than expected in October, trailing behind analysts' expectations, as a ramp-up of policy stimulus to buttress a wavering economy failed to boost credit demand.

Chinese banks extended 500 billion yuan ($69.51 billion) in new yuan loans in October, significantly down from September and falling short of analysts' expectations, according to data released by the People's Bank of China (PBOC).

Economists polled by Reuters had predicted a decrease in new yuan loans to 700 billion yuan last month from 1.59 trillion yuan in the previous month, and against 738.4 billion yuan a year earlier.

The PBOC does not provide monthly breakdowns but Reuters calculated the October figures based on the bank's January-October data released on Monday, compared to the January-September figure. The PBOC stated that new yuan loans totalled 16.52 trillion yuan for the first ten months of the year.

Chinese policymakers are striving to arrest further weakness in an economy struggling in recent months due to a prolonged property market downturn and growing local government debt. One of their objectives is to deal with the side effects from a significant amount of debt remaining from previous stimulus measures dating back to the 2008-2009 global financial crisis.

China unveiled a 10 trillion yuan debt package on Friday to alleviate local government financing strains and stabilize fading economic growth, especially amid renewed pressure following the re-election of Donald Trump as U.S. president. New measures will include sovereign bond issuance to replenish the funds of major state banks and policies to support the purchase of idle land and unsold flats from developers, as stated by Finance Minister Lan Foan.

However, China watchers are skeptical that these steps will result in a near-term boost in economic activity, given that most of the new funds will likely be applied to reduce local government debt. Nonetheless, the PBOC has pledged to continue supportive monetary policy to foster a favorable monetary and financial environment for economic growth. Furthermore, the PBOC indicated it will reevaluate money supply statistics to better mirror the actual state of the nation’s money supply.

Trump's election could also lead to a more robust fiscal package amidst looming economic challenges for China, especially since he has threatened tariffs exceeding 60% on U.S. imports of Chinese goods, which has raised concerns within China’s industrial sector.

The broad M2 money supply grew by 7.5% from a year earlier, which was above analysts' forecast of 6.9% in the Reuters poll, with M2 having grown 6.8% in September from a year ago.

Outstanding yuan loans rose 8.0% in October from a year earlier, slightly missing analysts' anticipated growth of 8.1%, the same pace as September. The outstanding total for social financing (TSF), a broad indicator of credit and liquidity in the economy, fell to a record low of 7.8% in October from 8.0% in September. An increase in government bond issuance could help stimulate growth in TSF, which includes off-balance sheet financing beyond conventional bank loans, such as IPOs, trust company loans, and bond sales.

In October, TSF decreased to 1.4 trillion yuan from 3.76 trillion yuan in September, whereas analysts had predicted TSF would be 1.55 trillion yuan.

($1 = 7.1935 Chinese yuan renminbi)