China’s bank lending in August greater than doubled from your previous month, but analysts said most of the gain was as a result of strong mortgage demand, increasing evidence that Chinese companies are increasingly hesitant to make new investments.
The figures, together with other data in the week, paint an image of the economy that is certainly improving slowly but increasingly reliant on a housing boom and government spending for growth.
Chinese banks extended 948.7 billion yuan ($142.23 billion) in 房貸 in August, well above expectations, while broad M2 money supply (M2) also grew with a more-than-expected 11.4 percent from the year earlier, as outlined by central bank data on Wednesday.
New bank lending rebounded sharply from July’s 463.6 billion yuan, that was the lowest in 2 years, while M2 quickened from July’s 10.2 percent rise, which had been the weakest in 15 months.
The central bank has pledged to help keep policy slightly loose, but sources say it is reluctant to cut interest rates or bank reserves again inside the near term amid evidence that companies and banks are hoarding cash as opposed to investing it.
“A renewed pick-up in credit growth last month will improve the growing sense among investors that the near-term outlook for China’s economy is rather bright,” said Julian Evans-Pritchard at Capital Economics.
“Credit growth remains prone to slow over coming months as the PBOC refrains from further easing and focuses more on credit risks. However with recent activity data also strengthening, we expect economic growth to bolster across the remainder of the year.”
Data on Tuesday showed China’s factory output and retail sales also grew faster than expected in August being a strong housing industry plus a government infrastructure spending spree underpinned increase in the world’s second-largest economy.
But August readings also highlighted imbalances within the economy, with private investment growth at record lows and exports still sluggish.
China’s increasingly reliance on the property market can be another major concern, as more cities impose restrictions on home purchases within the face of sharply rising house prices, threatening to finish a near one-year rally.
A sharp price correction would increase strains on banks which are already wrestling with growing amounts of bad loans.
Household loans, mostly mortgages, taken into account 71 percent of total new bank loans in August, though they were down from greater than 90 percent in July, data showed.
“Home mortgages remain the most important driver of loan growth, depending on booming housing industry and weak loan demand from corporates,” David Qu and Raymond Yeung at ANZ said inside a note.
Outstanding yuan loans grew at 13 percent by month-end upon an annual basis.
Analysts polled by Reuters had expected new lending of 750 billion yuan, with outstanding loans seen rising 12.9 percent, and cash supply seen up 10.4 percent.
Total social financing (TSF), an extensive way of measuring credit and liquidity from the economy, jumped to 1.47 trillion yuan in August from 487.9 billion yuan in July.
TSF includes off-balance sheet forms of financing which exist outside the conventional bank lending system, including initial public offers, 房屋貸款 from trust companies and bond sales.
M1 money supply, which includes cash and short-term deposits, rose 25.3 percent in August from your year earlier. The widening gap between M1 and M2 growth has fueled concerns about a “liquidity trap” in dexrpky35 economy where companies remain cautious about investing regardless of how much stimulus money policymakers pump into the system.
“The rapid expansion of M1 money supply indicates corporates’ preference of holding cash instead of investment. This can be consistent with all the slowing trend in fixed asset investment through the private sector,” ANZ said.
Chester Liaw, an economist at Forecast Pte Ltd in Singapore, said the spread between M1 and M2 growth narrowed to 13.9 percentage points from 15.2 recently but “remains at elevated levels.”
The PBOC is aiming for annual M2 growth of around 13 percent this current year, pointing to continued accommodative policy as Beijing pledges to engage in painful economic restructuring involving state-owned enterprises in key industrial sectors.
Policy insiders have said that evidence companies and banks are hoarding cash, alongside concerns about property market and also the yuan’s stability, has reinforced policymakers’ view there is absolutely no major benefit in easing policy further.