China’s bank lending in August more than doubled from the previous month, but analysts said much of the gain was due to strong mortgage demand, adding to evidence that Chinese companies are increasingly reluctant to make new investments.
The figures, along with other data this week, paint a picture of an economy that is improving slowly but increasingly reliant on a housing boom and government spending for growth.
Chinese banks extended 948.7bn yuan ($142.23bn) in net new yuan loans in August, well above expectations, while broad M2 money supply (M2) also grew by a more-than-expected 11.4% from a year earlier, according to central bank data yesterday.
New bank lending rebounded sharply from July’s 463.6bn yuan, which was the lowest in two years, while M2 quickened from July’s 10.2% rise, which was the weakest in 15 months.
The central bank has pledged to keep policy slightly loose, but sources say it is reluctant to cut interest rates or bank reserves again in the near term amid evidence that companies and banks are hoarding cash instead of investing it.
“A renewed pick-up in credit growth last month will add to the growing sense among investors that the near-term outlook for China’s economy is fairly bright,” said Julian Evans-Pritchard at Capital Economics.
“Credit growth is still likely to slow over coming months as the PBoC refrains from further easing and focuses more on credit risks.
But 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 as a strong housing market and a government infrastructure spending spree underpinned growth in the world’s second-largest economy.
But August readings also highlighted imbalances in the economy, with private investment growth at record lows and exports still sluggish.
China’s increasingly dependence on the property market is also a major concern, as more cities impose restrictions on home purchases in the face of sharply rising house prices, threatening to end a near one-year rally.
A sharp price correction would add to strains on banks which are already wrestling with growing numbers of bad loans. Household loans, mostly mortgages, accounted for 71% of total new bank loans in August, though they were down from more than 90% in July, data showed.
“Mortgage loans remain the major driver of loan growth, based on booming housing market and weak loan demand from corporates,” David Qu and Raymond Yeung at ANZ said in a note.
Outstanding yuan loans grew at 13% by month-end on an annual basis.
Analysts polled by Reuters had expected new lending of 750bn yuan, with outstanding loans seen rising 12.9%, and money supply seen up 10.4%.
Total social financing (TSF), a broad measure of credit and liquidity in the economy, jumped to 1.47tn yuan in August from 487.9bn yuan in July.
TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offers, loans from trust companies and bond sales.
M1 money supply, which includes cash and short-term deposits, rose 25.3% in August from a year earlier.
The widening gap between M1 and M2 growth has fuelled concerns about a “liquidity trap” in the economy where companies remain wary of investing regardless of how much stimulus money policymakers pump into the system.
“The rapid growth of M1 money supply indicates corporates’ preference of holding cash rather than investment.
This is consistent with the slowing trend in fixed asset investment by 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 aiming for annual M2 growth of around 13% this year, pointing to continued accommodative policy as Beijing pledges to embark on 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 the yuan’s stability, has reinforced policymakers’ view there is no major benefit in easing policy further.

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