Chinese authorities are facing an uphill battle in convincing companies and households to boost borrowing as long as Covid outbreaks and lockdowns continue to crush confidence.
After loan growth weakened in April to the worst level in almost five years, several indicators suggest the data for May won’t be much better.
Housing sales have continued to slump, indicating a lack of appetite for mortgages and subdued credit demand among real estate firms. Struggling to find enough clients, banks have been swapping bills with each other just so they can meet regulatory requirements for corporate lending.
The reluctance to borrow stems in large part from uncertainty over China’s Covid curbs, and whether future outbreaks could lead to repeated lockdowns like the one that crippled activity in Shanghai for weeks.
Businesses have had to halt production and cut jobs, revenue has slumped and profits have plunged. Many companies are putting expansion plans on hold.
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worsening expectations among market entities and slowing business expansion,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd. That suggests China’s economic rebound might be weak even in the third quarter, as many investment activities can only start after loans are secured.
The scenario is a challenging one for policymakers, who are pushing banks to lend more. The People’s Bank of China told lenders last week to “go all out” in increasing loans. It’s also pushed banks to lower mortgage rates and called on them to stabilize lending in the property sector.
The upshot is that the financial system is awash with cash, and any monetary easing from the central bank -- such as interest rate cuts and liquidity injections -- will likely prove less effective in spurring growth in the economy.
Here are four charts that show credit demand in China likely remained weak in May, even as Covid outbreaks began to wane and cities started to reopen.
Falling rates on a type of short-term interbank loan are one sign that banks aren’t lending much to corporates.
The interest rate on transferring bankers’ acceptances maturing in one month fell to 0.01% early last week. That’s the fourth time since December that the rate approached zero toward the end of the month, according to data from the Shanghai Commercial Paper Exchange.
Purchases of the bills are counted as loans to companies. A rate near-zero means buying banks are asking for almost no discounts on those purchases, as they try to meet regulators’ requirements to lend more even as firms won’t borrow.
“The near-zero interest rate shows the imbalance between credit supply and demand remains outstanding,” said Wang Yifeng, chief banking analyst at Everbright Securities Co.
Companies aren’t interested in selling debt, either. The amount of onshore corporate bonds issued is set to fall behind the value of maturity for the first time in seven months in May, by 102 billion yuan ($15.3 billion), according to Bloomberg-compiled data. That means more debt was repaid than borrowed.
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The contraction came even as costs fell. Earlier this month, the spread on three-year, AA-rated onshore corporate bonds to government bonds hit the narrowest since 2007, Bloomberg-compiled figures show. Source: