China loans jump in June as Beijing steps up credit support to boost economy amid US trade war

China’s bank lending rose as expected in June as Beijing stepped up credit support to Chinese corporations and key projects to help stabilise the economy amid the trade war with the United States. Chinese banks extended 1.66 trillion yuan (US$242 billion) of new loans in June, up from lending of 1.18 trillion yuan a month earlier, according to data released by the People’s Bank of China (PBOC) on Friday. The June lending was slightly lower than expectations of 1.70 trillion yuan, according to a Bloomberg survey of analysts, and was the biggest since January’s record of 3.78 trillion yuan. Despite the strong rise in June, the outstanding bank loan balance as of the end of June rose 13 per cent from a year earlier, down from 13.4 per cent at the end of May. Total new loans in the first six months reached 9.67 trillion yuan (US$1.4 trillion), up from 9.03 trillion yuan a year earlier. National aggregate financing, a broad measure of credit that includes new bank loans, entrusted loans, short-term bill financing and other financing from non-banking institutions, rose to 2.26 trillion yuan in June from 1.39 trillion yuan in May and was stronger than the expectation of 1.90 trillion yuan, according to the Bloomberg survey. Among aggregate financing categories, local government special bond issuance, whose proceeds are used for local infrastructure projects, stood at 8.45 trillion yuan at the end of June, up 44.7 per cent from a year earlier. In January-June, aggregate financing grew 13.23 trillion yuan. At the end of June, aggregate financing stood 10.9 per cent above a year earlier. The growth of M2, the broad measure of money supply, increased 8.5 per cent last month from a year earlier, the same rate as the month before and just below expectations for an 8.6 per cent increase. E Yongjian, a senior researcher of the Bank of Communications, said that the growth of bank credit and aggregate financing in June showed the impact of government initiatives to boost funding for real economic activity. Medium and long-term corporate loans posted a large rise in June compared to May, indicating “the credit structure is improving,” he said. Lending in June was bolstered by lower interest rates. “Chinese market interest rates have continued to fall since last year,” said Sun Guofeng, chief of the People’s Bank of China monetary policy department. The seven-day interbank rate stood at 2.56 per cent at the end of June, down 45 basis points from a year ago, while the yield on China’s 10-year treasury bond declined 25 basis points to 3.23 per cent over the period. Also, the corporate borrowing rate averaged 5.34 per cent in May, down 17 basis points from a year ago, Sun said. Downward pressure on the world’s second largest economy has continued to mount due to the effects of the trade war with the US and the government’s deleveraging programme to reduce debt and risky lending. Recent economic data have been weak, with the official purchasing manger’s index showing a renewed contraction in the manufacturing sector in June. The produce price index, meanwhile, slowed to the brink of deflation as factories had to offer discounts to sell their products due to weak exports and subdued domestic demand. Such pressure is likely to persist as US tariffs of 25 per cent on US$250 billion of Chinese products remain in place despite the trade truce agreed by President Xi Jinping and US counterpart Donald Trump at the G20 summit last month. The increase in the tariff rate on US$200 billion of China goods from 10 per cent to 25 per cent that took effect May 10 is just starting to be fully felt in the domestic economy. The Chinese government has avoided the massive economic stimulus measures that it employed following the global financial crisis a decade ago, instead opting for targeted stimulus to help small private-sector businesses and consumers, in particular cuts in personal and corporate taxes and reductions in the reserves that smaller banks much hold at the central bank, giving them more money to lend. The current state of the economy will be clearer after release of second quarter gross domestic product data on Monday. The central bank has kept market liquidity ample, especially after its seizure of the embattled Baoshang Bank in May. The overnight interbank bond collateral repo rate dropped to a “relatively low level” of below 1 per cent between June 24 and July 5, forcing the central bank to suspend open market operations, a tool the central bank uses frequently to inject money into the market, from late last month. The PBOC continues to struggle to boost lending to smaller firms, which have had a much harder time getting access to bank credit because of their higher risk profile and which have been hit hardest by US tariffs and subsequent economic slowdown. Iris Pang, chief Greater China economist of ING Bank, predicted the central bank will have to provide more targeted support to lift labour-intensive small firms out of their difficulties, as the fiscal stimulus – which is likely to increase as headwinds intensify – will be enough to ensure the annual growth target. Targeted support is an art. It won’t be an easy thing. How to ask banks to lend more to small and medium-sized enterprises. They don’t want to lend, [because] their risks are high Iris Pang “Targeted support is an art. It won’t be an easy thing,” she said. “How to ask banks to lend more to small and medium-sized enterprises. They don’t want to lend, [because] their risks are high.” Morgan Stanley economists Robin Xing and Jenny Zheng believe that the government will introduce a bigger fiscal stimulus package later this year, equivalent to 0.5 per cent of gross domestic product, to boost public spending and shore up consumer confidence. The central bank needs to accommodate the stronger fiscal support with more cuts in banks’ required reserve ratios and more injections of liquidity in the interbank market, in an efforts to ensure a 20 basis points decline in interbank interest rates to boost borrowing, they said. In addition, the central bank could expand large state-owned banks’ annual loan quotas for infrastructure investment, which could push the broad credit growth rate up to 12.5-13 per cent by year-end, they added.