Policy interest rates cut, July credit falls short of forecasts


Total social financing falls short of forecasts in July, will there be a reserve ratio cut in the second half? (Securities Journal)

On 11 August, the People’s Bank of China (PBOC) released financial data for July, indicating that the scale of new renminbi loans and growth in total social financing in July both came in beneath market expectations. 

In July, China’s renminbi loans increased by 345.9 billion yuan, for a year-on-year contraction of 349.8 billion yuan. The increase in total social financing was 528.2 billion yuan, for a contraction of 270.3 billion yuan compared to the same period last year.

As of the end of July, the broad money supply (M2) balance was 285.4 trillion yuan, for a year-on-year increase of 10.7%, and a growth rate 0.6 and 1.3 percentage points lower than the end of last month and the same period last year respectively.

Experts interviewed point out that the financial data in July was markedly low, mainly due to the short-term fluctuations caused by factors such as the overdraft effect and the delayed release of financial demand.

This does not mean that the process of expanding credit has shifted. With the continuous increase of macroeconomic policy adjustments, the credit downturn will not persist.

“The required reserve ratio (RR) cut is one of the counter-cyclical adjustment tools that is under consideration at this stage,” said Zhang Xu, chief analyst of fixed income at Everbright Securities.

Zhang believes that on the one hand, the economy is currently facing several difficulties and challenges, Macroeconomic data has weakened, and the implementation of RRR cuts at this stage can release a clear monetary policy signa and improve and stabilize market expectations.

On the other hand, RRR cuts can directly ease the liquidity constraints on lending by financial institutions and indirectly affect interest rate constraints.

This will improve the level of financial services for the real economy and maintain reasonable and sufficient liquidity in the banking system, while also spurring the economy to achieve effective increases in quality and rational growth in volume. 

China’s economy continues to stabilise and recover in July (National Bureau of Statistics

According to NBS data, in the month of July: 

  • The national service industry production index increased by 5.7% year-on-year. For the period from January to July, the national service industry production index increased by 8.3% year-on-year. 
  • The added value of industrial enterprises above designated size increased by 3.7% year-on-year and 0.01% month-on-month.
  • Total retail sales of social consumer goods was 3.6761 trillion yuan, for a year-on-year increase of 2.5%, and a month-on-month decrease of 0.06%. 
  • For the period from January to July, national fixed asset investment (excluding rural households) was 28.5898 trillion yuan, a year-on-year increase of 3.4%. Infrastructure investment increased by 6.8% year-on-year, manufacturing investment increased by 5.7%, and real estate development investment decreased by 8.5%.
  • The national surveyed urban unemployment rate was 5.3%, an increase of 0.1 percentage points from the previous month. 
  • The national consumer price (CPI) fell by 0.3% year-on-year and rose by 0.2% month-on-month.

Rate cut! MLF rate drops 15 basis points, reverse repo rate falls 10 basis points (Shanghai Securities News)

On 15 August, the People’s Bank of China (PBOC) announced that it would undertake 204 billion yuan in open market reverse repo operations and 401 billion yuan in medium-term lending facility (MLF) operations, in order to offset the impact of factors such as the peak of the tax period and maintain reasonable and sufficient liquidity in the banking system.

The bid interest rates were 1.8% and 2.5% for the reverse repos and MLFs respectively, as compared to 1.9% and 2.65% previously. This means that the open market reverse repo and MLF rates have dropped by 10 and 15 basis points respectively. On the same date, 6 billion yuan of reverse repos and 400 billion MLFs expired.

The tax season is approaching and funds are seeing marginal tightening. The overnight Shanghai Interbank Offered Rate (SHIBOR) has risen 35.3 basis points to 1.684%, while the 7-day SHIBOR has risen 5.5 basis points to 1.832%. 

As of yesterday’s (14 August) close, the weighted average DR007 interest rate rose to 1.8231%, which was lower than the policy interest rate level. The one-day government bond reverse repurchase rate (GC001) on the Shanghai Stock Exchange rose to 1.846%.

Central bank cuts rate for standing lending facility 10 basis points (China Finance

On 15 August, the People’s Bank of China announced via its official website that it had adjusted the standing lending facility rate (SLF), reducing the overnight rate by 10 basis points to 2.65%, the 7-day rate by 10 basis points to 2.80%, and the one-month rate by 10 basis points to 3.15%.

(Note: The SLF rate is considered to be the ceiling set by PBOC on its interest rate corridor)

Urban youth unemployment figures to be suspended starting from August: National Burau of Statistics (CCTV

Fu Linghui, spokesperson from the National Bureau of Statistics and director of the Department of Comprehensive Statistics of the National Economy, said that starting from August the national surveyed urban unemployment rate for the youth segment will be suspended. 

The main reasons are: the economy and society are constantly developing and changing, statistical work needs to undergo continuous improvement, and labour force survey statistics also need to undergo further improvement and optimisation.

For example, in recent years, the number of students amongst urban youths in China has continued to expand. In 2022, there will be more than 96 million urban youths aged 16-24 in China, of whom more than 65 million will be students.

What impact will Country Graden have on the recovery of the entire real estate sector? An official response (Shichang Zixun

The State Council Information Office held a press conference at 10 a.m. on August 15, 2023, where Fu Linghui, a spokesperson from the National Bureau of Statistics, took questions from reporters.

A CNBC reporter asked what impact the recent Country Garden real estate incident will have on the recovery of the entire sectors and measures such as guaranteed delivery of buildings.

Fu Linghui:

“At present, the real estate market is generally in the adjustment stage, and some real estate companies have encountered certain difficulties in their operations. 

More specifically, the debt risks of some leading real estate companies have been exposed, which has affected market expectations. However, we must see that these problems as phase-based in nature.

As the market adjustment mechanism gradually plays a role and real estate market policy is adjusted and optimized, we expect the risks of real estate companies to be gradually resolved. 

Recently, first-tier cities including Beijing, Shanghai, Guangzhou and Shenzhen have made strong calls for supporting and better satisfying inelastic and renovation housing demand. Certain second- and third-tier cities are also introducing new real estate adjustment policies. 

The adjustment and optimization of real estate policies in various regions will help boost market confidence. With the recovery of the economy, increases in household income and the effectiveness of the real estate market optimization policy, both housing consumption and the willingness to invest of real estate companies are both expected to gradually improve.”

Real estate development investment drops 8.5% for January – July (Yangzi Evening News

From January to July, national real estate development investment was 6.7717 trillion yuan, for a year-on-year decrease of 8.5% (calculated on a comparable basis). Residential investment was 5.1485 trillion yuan, a decrease of 7.6%.

In July, the real estate development climate index (referred to as the “National Housing Prosperity Index”) was 93.78. 

[Note: The National Housing Prosperity Index stood at 94.05 in June 2023 and 95.23 in July 2022). 

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