In August, Chinese banks distributed CNY 1,250 billion in new yuan loans, up from July’s figure of CNY 679 billion, but market expectations were lower than market expectations of CNY 1,480 billion. While corporate loans rose amid the government’s accommodative policy, household loan growth slowed amid weak consumer confidence. Money supply rose 12.2% from the same month a year earlier in August, which is higher than July’s 12.0% increase. Meanwhile, growth in the total social finance (TSF) stock – a broader measure of credit and liquidity in the economy – slowed to 10.5% on an annual basis from 10.7% in August.
On monetary policy, state-owned banks agreed to cut deposit rates in mid-September – the first such cut in deposit rates since 2015 – after the People’s Bank of China cut a raft of interest rates in August. The reduction in deposit rates should increase the scope for further reductions in lending rates in the coming months. However, the impact of monetary easing on economic activity is likely to be limited as long as the real estate sector remains in a state of collapse and the government maintains a zero-tolerance approach to new Covid-19 cases. The consensus is to cut key policy rates marginally by the end of the year.