China Credit Growth Slows Amid Property, Evergrande Troubles
(Bloomberg) -- China’s credit growth slowed in September, as weakness in the property market amid the Evergrande crisis weighed on financing and lending activities, despite the central bank’s call to stabilize credit expansion.
- Aggregate financing was 2.9 trillion yuan ($450 billion), the People’s Bank of China said Wednesday. That compares to 2.96 trillion yuan in August and 3.47 trillion yuan in September last year. The median estimate in a Bloomberg survey of economists was 3.05 trillion yuan
- Financial institutions offered 1.66 trillion yuan of new loans in the month, up from 1.22 trillion yuan in August. Economists had projected 1.81 trillion yuan
The slump is mainly a result of tightened financing to the property sector and reduced shadow banking activities related to the industry, according to Zhou Hao, senior emerging markets economist at Commerzbank AG. China’s major developers saw their sales plunge in September, after home sales in big cities dropped in August, and while Zhou says the weaker growth was “within expectations,” he predicts the PBOC will make a small cut to the benchmark interest rate in October.
The central bank reiterated last month that overall credit growth will become more stable to keep the macro leverage ratio steady, after credit expansion slowed significantly this year in part due to last year’s high base. The PBOC also urged financial institutions to help local governments stabilize the rapidly cooling housing market and make mortgages easier to get for some homebuyers, in a sign that regulators are trying to ringfence the fallout of China Evergrande Group’s debt crisis.
The slowing economic recovery from the pandemic is also reflected in weakening borrowing demand. Overall loan demand declined for the second straight quarter in the June-to-September period to the lowest level since the first quarter of 2020, according to a gauge compiled by the PBOC based on a survey on 3,200 banks across the country.
Banks made 466 billion yuan of medium and long-term loans to households in September, down more than 26% from the same month a year ago, and this was also below the level in 2019. These loans are often used as a proxy for mortgages, and have been dropping since May compared to 2020 levels.
- In September, broad M2 money supply grew 8.3%, faster than the previous month’s pace of 8.2%
- The stock of outstanding yuan loans rose to 188.4 trillion yuan from 186.7 trillion yuan
©2021 Bloomberg L.P.