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China economy

Analysts warn China financial situation remains weak despite rise in bank lending

  • People’s Bank of China struggling to pump money into real economy even as Xi Jinping’s government seeks to offset economic slowdown due to the trade war with the United States
PUBLISHED : Wednesday, 12 December, 2018, 11:17am
UPDATED : Wednesday, 12 December, 2018, 11:36am

China’s financial conditions did not fundamentally improve in November even though banks greatly expanded their lending at the request of the government, analysts said.

The People’s Bank of China continues to struggle to pump more money into the real economy even as the government has boosted its efforts to offset a slowdown of the economy due to the trade war with the United States.

Banks in China issued 1.25 trillion yuan (US$181 billion) in net new loans in last month, nearly double the 697 billion yuan (US$101 billion) in new lending in October, according to the data released by the People’s Bank of China, China’s central bank.

The November rise was also slightly above median expectation for a gain of 1.20 trillion yuan, according to a Bloomberg survey.

Total social financing (TSF) – a broad measure of credit and liquidity in the economy that includes loans, bonds and non-traditional instruments – rose a net 1.52 trillion yuan in November, more than double the 728.8 billion yuan gain in October and above the market expectation for a 1.33 trillion yuan rise.

Experts, however, warned that the risk appetite of financial institutions remained low and the financing demands of economic entities was weak.

“The structure of [the total social financing] was barely satisfactory,” analysts at Huatai Securities, led by Zhang Jiqiang, wrote about the November credit data. “The growth of medium- and long-term corporate loans was still insufficient.

“[The credit injected into the economy by financial institutions] was focused largely on short-term bills.”

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The year-on-year growth rate of outstanding TSF continued to slide, hitting a record low of 9.9 per cent last month.

“That showed there has been no substantial improvement yet in the current credit problems,” said Huatai Securities researcher Li Chao.

He added that “more policies to [improve] credit are expected to be implemented” by the government in the period ahead.

Special purpose bonds issued by local governments, a type of financing the central government has strongly encouraged regional authorities to use in recent months to offset the negative effects of the trade war, fell by 33.2 billion yuan as most authorities had used up their annual bond issuance quotas as of October, analysts noted.

The net growth of off-balance sheet forms of financing, which private companies have traditionally relied on, continued to shrink in November, falling by 190.4 billion yuan, as the government deleveraging programme continued.

“It will be hard for TSF to remain stable in the short term,” said Guohai Securities analyst Hu Niefeng.

“Lending to corporate entities has not improved and the influence of new [restrictive] regulations on off-balance sheet financing is continuing.”

Government policies “are likely to continue encouraging banks to lend more, but the results remain to be seen,” Hu added.

Annual growth rate of broad M2 money supply, another key credit gauge, remained at the record low of 8 per cent at the end of last month, matching market expectations.

The Chinese government has been pushing banks to lend more to help stabilise economic growth.

Smaller private sector firms, in particular, have struggled to get access to affordable credit, with banks reluctant to lend amid the government crackdown on excess debt.

Xi Jinping tries to give private business a ‘confidence boost’ as economic slowdown bites

At the beginning of last month China’s President Xi Jinping convened an unprecedented symposium with private entrepreneurs to promise them equal treatment, pledging to encourage banks to lend more to private borrowers.

That led the head of the China Banking and Insurance Regulatory Commission, Guo Shuqing, to say the regulator would push banks to allocate at least 50 per cent of their new corporate lending to private firms over the next three years.