CDT Money: Property Market Still Cooling

In the wake of another cut to the reserve requirement ratio (RRR) for commercial lenders, the second such move this year, data releases continue to indicate that China will need to take additional policy steps to boost an economy under siege both from financial crises abroad and slowing growth at home. With April’s bank lending already weaker than expected, the China Daily reported Thursday that China’s “Big Four” banks “made almost no new loans” in the first half of May. The figures do not reflect any increase in lending enabled by the RRR cut, which did not take effect until May 18, but doubts persisted over whether the move by China’s central bank would have a large impact anyway.
What ails China’s lending environment, and why won’t an RRR cut fix it? MarketWatch’s Craig Stephens thinks banks might have a supply-side problem, battling higher funding costs as their expanding suite of wealth management products – and the higher returns they offer investors – squeezes their margins. But Bob Davis and Tom Orlik write in The Wall Street Journal that the problem lies on the demand side, that the government can no longer “turbocharge the economy as they have in the past” by pushing state-owned banks to churn out new loans because the system lacks an ample supply of borrowers willing to take them:
The hesitation to borrow runs across the Chinese economy, from massive state-owned steelmakers struggling with overcapacity to small exporters trying to figure out when the European crisis might abate.
“We don’t need any expansion of credit because we are playing it safe,” said Stanley Lau, managing director of Renley Watch Manufacturing Co., a Hong Kong watch exporter that manufactures in southern China.
“Because of growing uncertainty over the economy, a lot of businesses are reluctant to borrow

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