New credit set for first fall since 2008
New credit in the mainland could fall for the first time since 2008, amid a weakening real economy and banks' tightening liquidity.
Ratings agency Fitch adjusted its estimate for total societal financing (TSF), a measure of overall new credit, including that from outside the banking system, to 16.5 trillion yuan to 17 trillion yuan this year, down from last year's 17.5 trillion (HK$21.4 trillion).
'Weakening demand for credit as well as resource constraints from thinning bank liquidity has been weighing on bank lending,' said Charlene Chu, head of Chinese banks' ratings at Fitch.
The four largest banks extended new loans by about 250 billion yuan last month, Liu Yuhui, a senior researcher at the Chinese Academy of Social Sciences, told Bloomberg. Credit across all financial institutions grew by an estimated 700 billion yuan, the China Securities Journal said.
Most of the loans were made in the second half of May. This was an improvement compared to the uncharacteristically low loan issuances in April. The Big Four banks issued only 101.7 billion yuan in new loans in the first 25 days of April, the China Securities Journal reported.
Broad credit growth began to moderate in the second half of last year, and the slowdown had accelerated this year, said Chu.
Beijing has recently fast-tracked unfinished or unapproved projects from the last round of the stimulus package to boost the economy after a slackening off in April which had shocked the leadership after what seemed like a solid first quarter, Stephen Green, Standard Chartered China economist, wrote recently.
Still, officials from various regulatory and government bodies say Beijing is not launching a stimulus package per se, as it hopes to rebalance the economy and make it less reliant on investment.
Independent economist Andy Xie Guozhong said accelerating investment projects might cushion the demand downturn but would not reverse the economic momentum.
'China's government-directed fixed asset investment faces falling returns and massive waste,' Xie said.
Fitch estimates that this year that each yuan in new financing will yield only 0.39 yuan in new gross domestic product versus 0.73 yuan before the global financial crisis of 2008.
Since the crisis, reliance on abundant, cheap financing to propel growth has increased. That was unlikely to the case this time because of the diminishing returns on investment and because bank balance sheets were stretched, analysts said.
The government has responded to the problem by trying to boost consumption; promote co-operation between state-owned enterprises and private companies; raise wages and productivity, and balance profitability with sustainability.
Zhang Yansheng, a top government economic-policy adviser, said last week that whenever growth slowed, people got nervous and start to think that more policies were needed. But, he said, a slowdown was part of a normal economic cycle.