A sharp slowdown in the Chinese property market coupled with fears about corporate defaults combined to make lenders extra cautious in July, resulting in the lowest monthly level of new credit since the 2008 global financial crisis.
Total social financing, including new loans, off-balance sheet lending and direct financing, dropped to 273.1bn yuan (CNY), equivalent to US$43.3bn or £26.5bn, and well short of the expected total of CNY1.5 trillion.
Short-term corporate loans were the hardest hit while medium-term loans and those to households held up better.
The People’s Bank of China (PBOC) by releasing a statement with the data to explain the surprise result. It said the lower-than-expected figure followed a surge in loans during June and that July was typically a slow month. It also provided the market with an unexpected update on August’s figures, revealing that credit had been growing steadily.
However, ANZ China economist Liu Li-Gang said that the scale of the drop in lending had only been paralleled twice before; following the September 11 2001 terrorist attacks on the US and at the time of the Lehman Brothers collapse in September 2008. “This shows banks are becoming risk averse as they have suddenly stopped lending,” he added.
BNP Paribas economists called the figures ‘rather abnormal’ and ‘worrisome’, while Barclays’ analysts said “more policy easing is unavoidable if the government wants to achieve the 7.5% growth target.”
Last month the International Monetary Fund (IMF) urged China to target slower expansion in 2015, saying its economy faces a number of vulnerabilities ranging from rising debt to financial institutions’ exposure to real estate.
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