Economy· Macro

Slow growth in demand for business credit may result in further policy easing

minutes 2019/06/14 04:16:43
new yuan loans; total social financing; business loans

Jun 14, 2019 (China Knowledge) - While Chinese banks made more loans in May to offset slowing economic growth, demand for business credit still remained sluggish suggesting the need for greater policy easing.

China’s total social financing (TSF) which measures credit and liquidity in the economy grew by a net RMB 1.4 trillion in May, higher than a net increase of RMB 1.36 trillion the month before and up 10.6% from a year earlier according to data from the People’s Bank of China (PBOC).

In May, banks made RMB 1.18 trillion in new yuan loans, up from RMB 1.02 trillion in the previous month. Of this amount, 56% of these loans went to the household sector compared to 51% in April, indicating that credit growth in May mainly came from consumers rather than from businesses.

Since January 2018, the Chinese central bank has initiated a series of measures to encourage more lending to small and private businesses such as multiple cuts to bank’s reserve requirement ratio and lower-cost liquidity to banks through targeted policy tools. Despite this, the country’s first quarter economic growth still slowed to its weakest pace in 27 years and such policy easing has not been effective in creating a sustained rebound in credit growth.

At the moment, the central bank has remained reluctant to cut benchmark interest rates. However recent comments from PBOC governor Yi Gang stated that China still has much room for policy adjustments including rate cuts as well as fiscal and monetary policy tools should the current trade war situation worsen, raising expectations of further policy easing.

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