China urges banks to boost loans to support recovery, cut debt risks

China’s central bank and financial regulators met with bank executives and told lenders to boost loans to support a recovery, adding to signs of heightened concern from policymakers about the deteriorating economic outlook.

Officials from China Life Insurance Co. and stock exchanges were also at the same meeting on Friday, where authorities discussed measures with the financial sector in preventing and reducing local government debt risks, according to a statement from the central bank on Sunday.

The People’s Bank of China last week unexpectedly reduced a key interest rate by the most since 2020 to bolster an economy that’s facing fresh risks from a worsening property slump and weak consumer spending. The surprise move came shortly before the release of disappointing economic activity data for July showing growth in consumer spending, industrial output and investment sliding across the board and unemployment picking up. 

Major financial institutions, especially big state-owned banks, must increase loan disbursements and avoid big fluctuations in lending, according to the statement. Chinese banks extended the smallest amount of monthly loans since 2009 in July, a further sign of weak demand in the economy that raises the risk of prolonged deflation pressure. 

Regulators and financial institutions must coordinate in reducing risks associated with local government debt and strengthen such monitoring, the central bank said. 

China must firmly avoid systemic risks, according to the statement. 

Local govts to sell $206 bn of financing debt

China plans to allow local governments to sell 1.5 trillion yuan ($205.9 billion) of special financing bonds to help 12 regions repay debt, Caixin reported.  The regions involved are under more pressure to repay local government debt, and they include Tianjin, Guizhou, Yunnan, Shaanxi and Chongqing, Caixin reported, without saying where it got the information. The Chinese central bank may set up a special purpose vehicle with banks to provide low-cost and long-term liquidity to local government financing vehicles, the report said. The planned measures are expected to help LGFVs reduce liquidity risks, it said. President Xi Jinping had described the issue as “major economic and financial risks” facing China.