China’s July new yuan loans expected to decrease after a record first half of the year, according to an ANBLE poll.

China's July new yuan loans expected to decrease after a record first half of the year, according to an ANBLE poll.

China’s New Yuan Loans Expected to Fall, But Economy May Still See Growth

China Yuan Loans

In an effort to underpin its faltering economy, China’s central bank is expected to see a sharp decline in new yuan loans for the month of July, according to a recent ANBLE poll. While this decrease is anticipated after record lending in the first half of the year, it is predicted that new loans may still exceed the amount from the same month the previous year.

Chinese banks are estimated to have issued approximately 800 billion yuan ($110.98 billion) in net new yuan loans for July, a significant drop from the 3.05 trillion yuan in June. Despite this decline, it is worth noting that July’s new loans are still expected to surpass the 679 billion yuan issued in the same month of the previous year. This reflects the ongoing efforts to stimulate economic growth amid a faltering recovery and weakened demand both domestically and internationally.

The first half of this year witnessed Chinese banks issuing a record-breaking 15.73 trillion yuan in new loans. This substantial number further highlights the country’s commitment to bolstering its economic activity in the wake of the COVID-19 pandemic.

China’s consumer sector has fallen into deflation, and factory-gate prices continue to decline, indicating the struggle to revive demand. As a result, pressure is mounting for Beijing to implement more direct policy stimulus measures. Fortunately, China’s top leaders have recently pledged to provide increased policy support for the economy, focusing on boosting domestic demand. This commitment signals the likelihood of further stimulus steps being taken.

To guarantee reasonably ample liquidity, a senior central bank official has stated that the bank will utilize policy tools such as reserve requirement ratio (RRR) cuts. This decision aligns with the efforts of government agencies to introduce more supportive measures. By flexibly employing these policy tools, authorities aim to maintain liquidity levels as needed.

The July poll shows that outstanding yuan loans are expected to grow by 11.3% from the previous year, matching the growth rate observed in June. Additionally, broad M2 money supply growth is predicted to decrease to 11.0% in July from 11.3% in June.

To bolster the economy, local governments have accelerated special bond issuance for infrastructure purposes. Data from the finance ministry reveals that in the first half of this year, these governments issued a net 2.3 trillion yuan in special bonds. This infrastructure investment is a crucial factor in propping up the economy during these challenging times.

Moreover, an increase in government bond issuance can aid in boosting total social financing (TSF), a broad measure of credit and liquidity. Outstanding TSF was reported to be 9.0% higher at the end of June compared to the previous year, highlighting a slight decrease from the 9.5% annual rate seen at the end of May.

In terms of the near future, TSF is expected to experience a sharp decline, falling to 1.10 trillion yuan in July, down from 4.22 trillion yuan in June. These fluctuations in TSF reflect the dynamic nature of China’s economic landscape and the authorities’ ongoing efforts to navigate the recovery from the pandemic.

In summary, China’s new yuan loans are expected to decrease in July. However, the overall economic outlook remains positive as policymakers continue to take steps to stimulate growth. By utilizing policy tools such as reserve requirement ratio cuts and increasing government bond issuance, China aims to ensure reasonably ample liquidity and boost total social financing. These efforts are crucial in underpinning the economy and fostering a swift and robust recovery from the impact of the COVID-19 pandemic.