Concerns over corporate defaults and a stalling property market have reportedly given Chinese lenders cold feet – driving last month’s new credit figures to their lowest point since the crash.
The “abnormal” figures were described by economists at BNP as “worrisome” and Barclays advised that “more policy easing is unavoidable if the government wants to achieve the 7.5% growth target.” Short term corporate loans were the worst affected, whilst medium-term loans and private household loans fared better. Overall, social financing, which covers direct financing, new loans and off-balance sheet lending, estimated at 1.5 trillion yuan, fell to just 273.1 billion yuan.
The International Monetary Fund (IMF) recently called for China to ease its expansion targets in 2015 and instead focus on addressing economic vulnerabilities caused by escalating debts and potential risks to financial institutions from the real estate sector. This appears to have been largely ignored by the country, whose People’s Bank of China (PBOC) brushed off the figures in a statement, saying that July is typically a slow month, that loans had surged in June and July, and that figures for August showed a steady rise in credit.
Economist Liu Li-Gang, of ANZ China, challenged this interpretation, pointing to the fact that a lending drop of this scale had only been seen twice before, once after the 9/11 terrorist attack and again after the Lehman Brothers collapse in 2008. “This shows banks are becoming risk averse as they have suddenly stopped lending,” he said.
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