China Credit Growth Slows to 2-Year Low on Debt Curb Concern

Updated on
  • Aggregate financing expanded by 487.9 billion yuan in July
  • Broad M2 money supply increased 10.2%, less than estimated

China’s broadest measure of new credit and another key gauge of lending increased at the slowest pace in two years, suggesting monetary authorities are more concerned about swelling financial risks than giving more of a boost to old growth engines.

Aggregate financing was 487.9 billion yuan ($73.4 billion) in July, compared with a median estimate of 1 trillion yuan in a Bloomberg survey of economists. New yuan loans stood at 463.6 billion yuan, versus a projected 850 billion yuan, the People’s Bank of China data showed Friday. Both increased by the least since July 2014. The broad M2 money supply increased 10.2 percent, the slowest pace since April 2015.

Curbing financial risks has increasingly become a policy priority after economic growth stabilized in the second quarter. The emphasis may reverse if a property market or factory output slump threatens the 6.5 percent growth goal. Other data released Friday showed signs the recent stabilization faltered in July as factory output, retail sales and investment all slowed.

"Credit data will likely remain at a low level in coming months due to sluggish investment and stricter shadow banking regulation," said Le Xia, chief Asia economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. "The central bank will take action if it slips further." Weak credit reflects great downward pressure in the third quarter, Le said.

The credit data followed other downbeat reports earlier Friday, when the National Bureau of Statistics said industrial production rose 6 percent from a year earlier in July. Retail sales climbed 10.2 percent last month, while fixed-asset investment increased 8.1 percent in the first seven months of the year. All three readings missed economist’s estimates.

Separately Friday, the Ministry of Finance said the July fiscal surplus was 200.2b yuan while fiscal revenue rose 3.3 percent from a year earlier to 1.48 trillion yuan. China will face difficulty in boosting fiscal revenue growth in coming months because of downward economic pressure, the ministry said in a statement on its website.

The sharp drop in the new loans may be related to recent discussions on containing asset bubbles last month by the country’s top leaders, and banks tightening control on home loans, according to Zhou Hao, senior economist at Commerzbank AG in Singapore.

— With assistance by Xiaoqing Pi

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