China's New Bank Loans Contract Again in July, Second Time This Year
Key Takeaways
- •China's new bank loans shrank by ¥340 billion in July, the second monthly contraction this year after April, missing expectations of a ¥45 billion increase.
- •New yuan lending for January through July totaled ¥10.38 trillion, well below the ¥12.88 trillion recorded over the same seven months last year.
- •Weak household credit demand remains a significant drag on lending, with the property downturn that began with 2021 developer defaults contributing and short-term household borrowing falling sharply in recent months.
- •The People's Bank of China has cut key policy rates and banks' reserve requirements this year, but easier and cheaper credit has yet to restore borrowing appetite.
- •The figures cast doubt on the resilience of the Chinese economy, with attention now on household borrowing trends, total social financing data, and whether policymakers deliver further support for consumption and the property market.
China's new bank loans contracted again in July, the second time this year, shrinking by ¥340 billion, according to the latest monthly credit data. The result fell short of expectations, which had forecast an increase of ¥45 billion in new lending. The decline makes it the second monthly contraction in new bank loans this year, following an earlier drop in April.
New yuan loans for the January-to-July period totaled ¥10.38 trillion, a marked decline from the ¥12.88 trillion recorded over the same seven months last year. July's contraction means China's new bank loans have now fallen in back-to-back Julys.
The readings matter well beyond the banking sector. In China's bank-centric financial system, the monthly lending figures published by the People's Bank of China are among the timeliest barometers of domestic demand, and as the world's second-largest economy, swings in China's credit cycle feed into global trade and commodity demand.
While the fall may be tied in part to seasonal factors, weak household credit demand remains a significant drag on lending in the Chinese economy. The property market crisis — a downturn that dates to a wave of developer defaults starting in 2021 — had already contributed to a slowdown in credit demand, and the collapse in short-term borrowing by households has become increasingly pronounced in recent months. The People's Bank of China has eased policy this year, cutting key policy rates and the share of deposits banks must hold as reserves, but easier and cheaper credit has yet to revive borrowing appetite.
The latest figures once again cast doubt on the resilience of the Chinese economy, even as top-level data continues to indicate that "everything is fine." Whether the downturn in short-term household borrowing persists will be a key trend to watch in the months ahead, along with the broader total social financing figures and whether policymakers — who have made boosting consumption and stabilizing the property market stated priorities — deliver further support.
Source: Investinglive
