New bank lending in China fell by more than expected last month as credit growth slowed as Covid-19 outbreaks and the property sector’s troubles weighed on credit demand.
The People’s Bank of China has pledged to keep policy accommodative to support growth but it faces limited room for manoeuvre due to concerns over capital flight and a weakening yuan.
Chinese banks extended 615.2 billion yuan ($84.86 billion) in new yuan loans in October, about a quarter of the 2.47 trillion yuan in September, data released by the People’s Bank of China showed on Thursday.
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“Much weaker than expected credit growth and an extremely unusual outright fall in lending to households again underlines the difficulties policymakers are facing stimulating growth while activity is suppressed by zero-Covid,” Mark Williams at Capital Economics said in a note.
China’s top leadership body, the Politburo Standing Committee, called for the unwavering support of the country’s “dynamic-zero” Covid policy on Thursday, during its first meeting since being unveiled at last month’s Communist party congress, state media reported.
The world’s second-largest economy saw a faster-than-expected rebound in the third quarter but its growth prospects have dimmed due to a recurrence of Covid outbreaks, with lockdowns hurting factory and consumer activity.
Falling home sales have also deepened the problems of indebted property developers.
“While domestic demand is still weak and a decline in external demand is accelerating, counter-cyclical policies need to be further strengthened and effective to provide more powerful support for the real economy,” said Wen Bin, chief economist at China Minsheng Bank.
China Set to Miss Annual Growth Target
Luo Yunfeng, an analyst at Merchants Securities, said a drop in October bank lending was expected as the central bank may have guided banks to lend more in September, ahead of a twice-a-decade congress of the ruling Communist Party.
Household loans, including mortgages, contracted by 18 billion yuan in October, versus 650.3 billion yuan in September, while corporate loans dropped to 462.2 billion yuan from 1.92 trillion yuan, central bank data showed.
China’s local governments issued a net 24.1 billion yuan in special bonds in September, the finance ministry has said, down from 51.6 billion yuan in August.
The central bank governor has pledged to maintain normal monetary policy and positive interest rates for as long as possible, projecting that China’s potential economic growth is likely to stay within a reasonable range.
Chinese regulators have been expanding financing channels for ailing property developers in a bid to stabilise the sector.
China is on track to miss its annual growth target of around 5.5% – the latest Reuters poll forecast 2022 growth at 3.2%.
- Reuters with additional editing by Sean O’Meara
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