China’s bank lending in August greater than doubled through the previous month, but analysts said a great deal 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 a picture of the economy that is certainly improving slowly but increasingly dependent 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 by a more-than-expected 11.4 percent from the year earlier, according to central bank data on Wednesday.
New bank lending rebounded sharply from July’s 463.6 billion yuan, which had been the lowest in 2 years, while M2 quickened from July’s 10.2 percent rise, that was the weakest in 15 months.
The central bank has pledged to hold policy slightly loose, but sources say it is reluctant to cut rates of interest or bank reserves again within 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 enhance the growing sense among investors that the near-term outlook for China’s economy is pretty bright,” said Julian Evans-Pritchard at Capital Economics.
“Credit growth remains prone to slow over coming months because the PBOC refrains from further easing and focuses more about credit risks. However with recent activity data also strengthening, we expect economic growth to strengthen over the remainder of the year.”
Data on Tuesday showed China’s factory output and retail sales also grew faster than expected in August like a strong housing industry along with a government infrastructure spending spree underpinned development 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 home market is yet another major concern, as more cities impose restrictions on home purchases in the face of sharply rising house prices, threatening to finish a near one-year rally.
A sharp price correction would boost strains on banks that are already wrestling with growing variety of bad loans.
Household loans, mostly mortgages, accounted for 71 percent of total new bank loans in August, though these people were down from more than 90 percent in July, data showed.
“Mortgage loans remain the key driver of loan growth, depending on booming real estate market 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 funds supply seen up 10.4 percent.
Total social financing (TSF), a large way of measuring credit and liquidity within the economy, jumped to 1.47 trillion yuan in August from 487.9 billion yuan in July.
TSF includes off-balance sheet sorts of financing that exist away from conventional bank lending system, for example initial public offers, 房屋貸款 from trust companies and bond sales.
M1 money supply, consisting of 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 wary of investing regardless of how much stimulus money policymakers pump to the system.
“The rapid growth of M1 money supply indicates corporates’ preference of holding cash as opposed to investment. This can be consistent together with 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 last month but “remains at elevated levels.”
The PBOC is concentrating on annual M2 expansion of around 13 percent this coming year, pointing to continued accommodative policy as Beijing pledges to set about 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 no major benefit in easing policy further.