New loans figures followed a flurry of May data at the weekend, which reinforced the view China is heading for its sixth quarter in a row of slowing growth and helping to explain a surprise interest rate cut last week – Beijing’s boldest action yet to underpin economic activity.
The central bank said on Monday that banks issued more than 793 billion yuan ($124 billion) in fresh loans in May, up from 682 billion yuan in April and stronger than 720 billion yuan expected by financial markets.
“The rise is due to monetary easing and, more importantly, the government’s quickening approval for new investment projects,” said He Yifeng, an economist at Hongyuan Securities in Beijing.
The surprising lending figures suggest that recent steps to boost credit, including a mid-May cut to the reserve requirement ratio, may have started to yield results. Business Insider dives deeper into the May lending stats, and Simon Rabinovitch writes in The Financial Times that Beijing is putting the right amount of pressure on its banks:
In 2009 when China went into overdrive to combat the global financial crisis, its banks issued a torrent of loans, which subsequently fuelled concerns about the amount of bad debt that had been built up in the financial system.
This time, the government has tried to avoid a similar mistake by restraining expectations for any similar credit binge, saying that a major stimulus is not needed again. But it has also quietly prodded banks to provide credit for a series of state-backed investment projects, from irrigation networks to power plants, that it has launched to help keep growth on track.
“The question of whether banks and borrowers will respond to government calls for more credit-fuelled spending has been answered with a clear yes,” Wang Qinwei and Mark Williams, analysts with Capital Economics, wrote in a note. “While May data were still mixed, a rebound now seems highly likely.”