Chinese Retailers See Rise in Loan Rejections, Beige Book Says

(Bloomberg) -- Smaller Chinese companies and those in the retail industry are struggling to access credit amid a weak recovery in consumer spending, according to China Beige Book International, a provider of independent economic data.

Loan rejection rates for retail businesses increased to 38% in the final quarter of 2020 from 14% in the previous quarter, according to the latest quarterly report from CBBI. Rejection rates for small and medium-sized businesses rose to 24% in the final quarter, double the rate posted by large companies during the period.

“Large firms continue to gobble up whatever credit was available, enjoying much lower capital costs than their smaller counterparts, alongside higher loan applications and still falling rejections,” CBBI said. “This is the opposite of the quagmire small-and-medium enterprises find themselves in.”

The CBBI’s analysis provides a more subdued picture of China’s economic recovery than official data show, pointing to still weak consumer spending. It also suggests headwinds to Beijing’s efforts to encourage more lending to smaller, private sector businesses by assigning loan quotas to banks and supplying discounted funding.

A recovery in services revenue was driven by businesses in telecommunications, shipping, and financial services, but those in consumer-facing industries, such as chain restaurants and travel, continued to lag behind, according to CBBI.

“Don’t confuse fourth quarter’s services recovery with the ‘Chinese consumer is back’ narrative,” said CBBI’s Managing Director Shehzad Qazi. “This is a business services -- not consumer-side -- recovery. Retail sector data bear this out even more clearly, with spending on non-durables sagging.”

The CBBI’s indicators showed that goods prices, wages and other input costs have been rising since the second quarter of 2020. That contrasts with official measures of producer and consumer prices, which show deflation over the last month.

“Inflation is both less worrisome than official numbers and implies a more sensible economic trajectory,” it said.

The report was based on more than 3,400 interviews with company executives and bank staff in November and December.

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