China’s Credit Expansion Rebounds in August on Property Binge

  • Aggregate finance rose by more than all 25 economists forecast
  • Mortgage lending led the surge as biggest cities lead boom

China’s broadest measure of new credit exceeded estimates in August as a property boom in the nation’s biggest cities fuels near-term growth and adds to longer-term worries about the expansion’s sustainability.

Key Points

  • Aggregate financing was 1.47 trillion yuan ($220 billion) in August compared with a median estimate of 900 billion yuan in a Bloomberg survey of economists 
  • New yuan loans stood at 948.7 billion yuan, versus a projected 750 billion yuan
  • M2 rose 11.4 percent from a year earlier versus 10.5 percent seen by economists

Big Picture

The economy has shown signs of resilience as factory output, investment and retail sales all exceeded analyst estimates in August amid a boost from the property market. With policy makers signaling they’ll take steps to rein in "bubbly" housing markets and businesses remaining reluctant to invest, prospects for a sustainable credit-fueled reacceleration in economic growth appear some way off.

Economist Takeaways

"Monetary policy is obviously loose and liquidity is ample," said Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong. "The loans almost all went to the property market due to surging prices in big cities."

"Monetary policy is pushing on a string and we are reliant on state lending, spending for recovery," said Michael Every, head of financial markets research at Rabobank in Hong Kong. "But that can’t last forever. It’s a clear sign that there is a liquidity trap."

"The on-off flow of aggregate financing is unusual, but year-to-date it’s up a reasonable 11 percent," said Tim Condon, head of Asian research at ING Groep NV in Singapore. "The effort to curb the shadow banks persists with new yuan loans and, increasingly, the bond market and the equity market providing most of the financing."

The Details

  • Medium and long-term new loans to households, which is mostly mortgages, climbed 528.6 billion yuan
  • Financing via corporate bonds made a come back, with 330.6 billion yuan raised
  • Foreign currency loans rose 7 billion yuan, snapping months of net repayments

— With assistance by Xiaoqing Pi

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