Chinese new bank loan growth rose marginally in August amid limited corporate debt appetite.
Last Friday (10 September) the People’s Bank of China (PBOC) announced that local banks extended CNY1.22trn ($189.51bn) of new yuan loans in August, higher than the nine-month low of CNY1.08trn in July 2021.
Despite the improvement, most economists said that new loan growth remains sluggish. ING’s chief economist for Greater China, Iris Pang wrote in a note that August's rebound was smaller than the same month in 2020 and 2019.
Corpoate loan demand weak
"In short, loan demand has been weaker than 2020 since July. And this weakness is in the corporate sector, not households,” she said.
The positive signal, according to some economists, is that the sluggishness in new loan growth may bottom out soon.
Economists at UBS expect new loan growth to hit the bottom by September or October: "We expect property-related credit to soften…On the other hand, the PBOC recently increased relending quota by CNY300bn this year to support SME (small and medium-sized enterprise) businesses. This, plus continued manufacturing capex (capital expenditure) rebound and sustained support for green initiatives, may help underpin corporate loans,” a recent note from UBS stated.
ING’s Pang has a similar view, according to her the policy clampdown in China has been one of the reasons for the slower loan growth. However, she sees the situation changing. “We believe that the government will stick to its 14th Five Year Plan as the economic growth roadmap and corporates may need to connect their business plans with it. This hiccup in investment sentiment should then fade out,” Pang wrote.
China growth estimates cut
However, not everyone expects a recovery. Economists at BofA Global Research said that the loans data for August looks weaker than it “meets the eye”.
“Outside of infrastructure and property, credit demand is too weak to support a stable growth in credit expansion. Unless policymakers make a timely move to relax credit control on these two sectors in September, we will likely see a bumpier macro ride in the coming quarters,” BofA Global Research said in a recent note.
While China reported a healthy export growth at 25.6% in August, data related to factory activity remains weak. Most experts have already trimmed China’s economic growth forecast for 2021 to be around 8.5%-8.9% as compared to more than 10% that most were forecast before June.