Why Did New Lending in China Fall Short for the Month of July?


China saw a marked slowdown in lending in the month of July, despite the rebound in credit extension posted in the preceding months of May and June.

Data from the People’s Bank of China (PBOC) indicates that new renminbi lending totalled 679 billion yuan for July, 404.2 billion yuan less than the print for the same period last year. Total social financing was 756.1 billion yuan for July, representing a decline of 319.1 billion yuan compared to the same month of 2021.

Both prints fell short of consensus expectations amongst Chinese economists.

Both short-term household and enterprise (institutional) loans fell in the month of July, while medium-and-long term loans posted modest increases.

Household loans increased 121.7 billion yuan in July, including a decline in short-term loans of 26.9 billion yuan, and an increase in medium-and-long term loans of 148.6 billion yuan.

Enterprise (institutional) loans increased 287.7 billion yuan in July, with short-term loans falling 354.6 billion yuan, and medium-and-long term loans increase 345.9 billion yuan.

Chinese experts said to state-owned media that the slide in July lending and credit extension is significant of lacklustre demand for loans in the real economy.

Wen Bin (温彬), chief economist for China Minsheng Bank, said the decline in short-term loans for Chinese households is mainly due to waning willingness to take out consumer loans, while the modest increase in medium-to-long term loans indicates that the real estate market is still bottoming out.

According to Wen enterprise (institutional) loan data for July indicates that demand for enterprise financing is still insufficient.

Wen also highlighted emerging imbalances in the lending structure, pointing out that households and enterprises accounted for 30% and 70% shares of new loans respectively in July, while the figures for the same period last year were 48% and 57% respectively.

Wang Qing (王青), chief macro-economist with Golden Credit Rating, said that the large-scale on-period decline in total social financing in July was mainly due to seasonal factors, as well as the completion of annual special bond issuance as of the end of June.

Despite the slowdown in July lending, China’s M2 balance still hit 257.81 trillion yuan as of the end of the month, for a YoY rise of 12%. The July YoY growth rate marks the fastest increase since the start of 2022, as well as the fourth consecutive month of double digit growth.

According to Wang Qing, however, this acceleration was mainly due to large-scale fiscal tax debates, and was not representative of further credit loosening.