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China loans hits record US$1.73 trillion in first half of 2020 after strong June as coronavirus recovery continues

July 13, 2020

Editors note: China’s continuous subsidy machine, in the form of loans that don’t need to be paid back, is accelerating. This is how they can sell at prices that don’t make sense.

  • Banks extended a record 12.09 trillion yuan (US$1.73 trillion) of new loans in the first half of 2020, beating a previous peak of 9.67 trillion yuan in the first half of 2019
  • Chinese banks extended 1.81 trillion yuan (US$258 billion) in new yuan loans in June, up from 1.48 trillion yuan in May

New bank lending in China rose 22.3 per cent in June from May as authorities continued to boost credit and ease policy to get the world’s second-largest economy humming again after a sharp coronavirus-induced contraction.

Chinese banks extended 1.81 trillion yuan (US$258 billion) in new yuan loans in June, up from
1.48 trillion yuan in May
and slightly exceeding analysts’ expectations, according to data released by the People’s Bank of China (PBOC) on Friday.

That pushed bank lending in the first half of the year to a record 12.09 trillion yuan (US$1.73 trillion), beating a previous peak of 9.67 trillion yuan in the first half of 2019, the data showed.

Analysts polled by Reuters had predicted new yuan loans would rise to 1.80 trillion yuan in June.

"The central bank is still likely to keep interest rates close to record lows and it will probably continue to lean on quantitative tools to shore up lending - Julian Evans-Pritchard"

The monthly tally was 9 percent higher than 1.66 trillion yuan a year earlier. While lending in China typically picks up in June, analysts say policymakers want to maintain strong credit growth until the economy gets back on solid footing.

“We anticipate a further acceleration in the coming months. Admittedly, the PBOC has allowed interbank rates to rise in recent weeks and we think that it is mostly done cutting rates this cycle. But the central bank is still likely to keep interest rates close to record lows and it will probably continue to lean on quantitative tools to shore up lending,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

“Meanwhile, a further ramp-up in government bond issuance is planned over the coming months. This should help keep the economic recovery on track and allow the output to return to its pre-virus trend by the end of the year.”

Household loans, mostly mortgages, rose to 978.8 billion yuan in June from 704.3 billion yuan in May, while corporate loans rose 927.8 billion yuan from 845.9 billion yuan, according to Reuters calculation based on the central bank data.

China’s economy is gradually recovering from a
6.8 percent decline in the first quarter, its first contraction on record, but analysts say it will take months for broader activity to return to pre-crisis levels.
Central bank Governor Yi Gang said last month that policymakers will keep financial system liquidity ample in the second half of the year as the economy improves, but will need to consider withdrawing support at some point, raising questions among investors over when it may start dialling back its stimulus efforts.

The PBOC has rolled out a raft of easing steps since early February, including cuts in lending rates and banks’ reserve requirements and extending targeted lending support for virus-hit firms, but it has not slashed interest rates to near zero or embarked on huge bond buying sprees as many other major central banks have done.

Reflecting uncertainties over the recovery from the Covid-19 pandemic, China dropped its
annual growth target this year for the first time since 2002 and pledged more government spending.

Premier Li Keqiang has said that growth in M2 – a broad gauge of money supply – and total social financing will be significantly higher this year.

Broad M2 money supply in June grew 11.1 per cent from a year earlier, central bank data showed, in line with analysts’ forecasts in the Reuters poll and the same pace as in May.

Outstanding yuan loans grew 13.2 per cent from a year earlier, also steady from May, as analysts had expected.

Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, quickened to 12.8 per cent in June from a year earlier and from 12.5 per cent in May.

TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.

In June, TSF rose to 3.43 trillion yuan from 3.19 trillion yuan in May. Analysts polled by Reuters had expected May TSF of 3.00 trillion yuan.

Read the original article here. 

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