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China New Loans Exceed Estimates as Wen Counters Slowdown

China’s new lending was the highest of any August on record as the government tries to reverse an economic slowdown that threatens to cost jobs and undermine support for the Communist Party.

New local-currency lending was 703.9 billion yuan ($111 billion) last month, the People’s Bank of China said today in Beijing. That was more than the 600 billion yuan median estimate in a Bloomberg News survey of 32 economists and 540 billion yuan in July.

The pickup in lending follows interest-rate cuts in June and July, government approvals for subway and road projects and a warning from the labor ministry that the slowdown is starting to hit the job market. Data earlier this week showed imports fell in August and industrial output rose the least in three years, building the case for more stimulus.

“The data suggests that China is managing to boost the funding necessary to implement stimulus measures,” Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong, said in a note today. “This bodes well for a clearer recovery of growth momentum” in the fourth quarter, he said.

Chinese stocks fell after auto sales rose less than analyst estimates and Macquarie Group Ltd. cut its forecast for full- year economic growth. The benchmark Shanghai Composite Index slid 0.7 percent.

Reserve Requirements

Besides cutting interest rates, the PBOC lowered banks’ reserve requirements three times from November to May. Analysts’ estimates for new local-currency loans ranged from 540 billion yuan to 843 billion yuan. Banks extended 548.5 billion yuan of loans in August 2011.

Aggregate financing, which includes bank lending, off- balance sheet loans and bond and stock sales, increased 16 percent in August from a year earlier to 1.24 trillion yuan, central bank data showed today. The figure was 1.04 trillion yuan in July. The PBOC introduced the measure, also known as total social financing, last year to have a clearer picture of credit creation in the economy.

“The increases in TSF and bank loans reinforce our belief that the government’s policy stance has become more proactive,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. He forecasts a rebound in fourth-quarter economic growth to 8.8 percent.

M2, the broadest measure of money supply, rose 13.5 percent in August from a year earlier, compared with the 14 percent median estimate in a Bloomberg News survey.

Medium-to-long-term loans increased as a proportion of new lending to non-financial companies last month, rising to 29 percent of new loans, compared with 26 percent in July.

Bond Issuance

Net issuance of corporate bonds was 258.4 billion yuan in August, more than double the 89.8 billion a year earlier, the data showed.

The economic slowdown is starting to hit the job market, Xin Changxing, a labor vice minister, said this week as the party and Premier Wen Jiabao prepare for a once-in-a-decade leadership change.

China’s economy grew 7.6 percent in the second quarter, the slowest pace in three years, as Europe’s debt crisis limited exports and property curbs at home damped domestic demand. Economists at UBS AG, ING Groep NV and Royal Bank of Scotland Plc forecast full-year growth of 7.5 percent, which would be the weakest since 1990.

About a quarter of investors, analysts and traders who are Bloomberg subscribers surveyed Sept. 4 said they expect Chinese markets to be among the worst performers over the next year, the highest negative reading the country has received in the quarterly Bloomberg Global Poll since January 2010.

China’s biggest lenders, including Industrial & Commercial Bank of China (601398) Ltd., the world’s largest by market value, posted slower profit growth in the second quarter as a sluggish economy curtailed demand for financial services and more borrowers defaulted on debt.

Combined earnings of China’s five biggest banks increased 13 percent to 203.6 billion yuan in the quarter, compared with 33 percent a year earlier, according to data compiled by Bloomberg.

--Zheng Lifei. Editors: Scott Lanman, Paul Panckhurst

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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