By Kevin Yao and Fang Cheng
BEIJING (Reuters) - China's new yuan loans exceeded expectations in July while growth of broad money supply rebounded to a five-month high, as the central bank sought to step up policy support for the economy amid a growing trade battle with the United States.
China's policymakers have been pumping in more cash to encourage banks to lend to struggling firms, but there are signs that lenders are turning cautious as defaults rise, complicating efforts to channel money to sectors that need it.
"New loans exceeded expectations due to policy support," said E Yongjian, an analyst at Bank of Communications in Shanghai.
"The central bank has stepped up liquidity support for banks and encourage their lending to targeted areas such as small firms and infrastructure projects".
Also Read
However, some China watchers fear Beijing's shift in focus to supporting growth may spell a return to its credit-fuelled spending binges of the past, undercutting a multi-year campaign to reduce risks in the financial system and a mountain of debt.
Chinese banks extended 1.45 trillion yuan ($210.63 billion)in net new loans in July, data from the People's bank of China showed on Monday, in line with that released by China's banking and insurance regulator.
Analysts polled by Reuters had predicted new yuan loans of 1.2 trillion yuan, down sharply from June's 1.84 trillion yuan.
Chinese banks usually make fewer loans in July after traditionally ramping up lending in June. New loans were 825.5 billion yuan in July 2017.
Household loans, mostly mortgages, fell to 634.4 billion yuan in July from 707.3 billion yuan in June, while corporate loans fell to 650.1 billion yuan in July from 981.9 billion yuan a month earlier, according to the central bank's data.
China's banks extended a record 13.53 trillion yuan in new loans last year, and lent 9.03 trillion yuan in the first half of this year, a jump of 13 percent from the same period of 2017.
With rapidly expanding U.S. tariffs threatening to trigger a sharper slowdown in China's already cooling economy, Beijing has started rolling out growth boosting measures ranging from higher infrastructure spending to liquidity injections and tax cuts.
The consensus view is that authorities are likely to modestly loosen monetary and fiscal policy in various ways, including further cuts in banks' reserve requirements on top of three this year already.
MONEY SUPPLY GROWTH REBOUNDS
Broad M2 money supply grew 8.5 percent in July from a year earlier - the highest in five months and beating forecasts for an expansion of 8.2 percent and compared with a record low of 8.0 percent in June.
Outstanding yuan loans grew 13.2 percent from a year earlier, faster than an expected 12.8 percent rise and compared with an increase of 12.7 percent in June.
China's total social financing (TSF), a broad measure of credit and liquidity in the economy, dropped to 1.04 trillion yuan in July from 1.18 trillion yuan in June, data from the central bank showed on Monday.
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.
That can provide hints of activity in China's vast and unregulated shadow banking sector, which authorities have also been targeting in their campaign to reduce systemic risks.
Combined trust loans, entrusted loans and undiscounted bankers' acceptances, which are common forms of shadow banking finance, fell by 488.6 billion yuan in July, following a slide of 1.26 trillion yuan in the first six months.
A central bank adviser said recently China should limit the credit impact of its risk and debt reduction drive, voicing concern that tightening may have gone too far.
But unless business conditions deteriorate markedly, most economists believe Beijing will stick with its "deleveraging" campaign, albeit at a more cautious pace, as it waits to see how the trade dispute plays out.
For now, a return to massive money printing like that seen during the global financial crisis, which would risk a further debt blowout, does not seem to be on the cards.
($1 = 6.8840 Chinese yuan renminbi)
(Reporting by Kevin Yao and Cheng Fang; Editing by Richard Borsuk and Darren Schuettler)
Disclaimer: No Business Standard Journalist was involved in creation of this content
