Poll: China July new loans seen lower, more policy easing expected as trade woes build

Bank of Jinzhou Co

08/08/2019 10:02

* reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=CNMSM2%3DECI
 money supply poll data
    * reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=CNNYL%3DECI
 new loans poll data
    * July new loans seen at 1.25 trln yuan vs 1.66 trln yuan in
June
    * July M2 money supply growth seen at 8.4% y/y vs 8.5% in
June
    * July TSF seen at 1.5 trln yuan vs 2.26 trln yuan in June
    * Loans, money supply data due Aug 10-15

    BEIJING, Aug 8 (Reuters) - New bank lending in China likely
slowed in July, a Reuters poll showed, reinforcing expectations
that policymakers will need to announce more support measures in
coming months to stabilise the cooling economy as U.S. trade
pressure builds.
    The rapidly worsening trade dispute, rising borrowing costs,
and this week's sudden drop in the yuan have fanned worries that
the world's second-largest economy could face a sharper
slowdown.
    But policymakers are also increasingly worried about rising
debt and financial risks, particularly in the property market. 
    Chinese banks likely extended 1.25 trillion yuan ($177.39
billion) in net new yuan loans last month, down from 1.66
trillion yuan in June and below 1.45 trillion yuan in July 2018,
according to a median estimate in a Reuters survey of 28
economists.
    Lending typically slows in China in July before picking up
again in August.
    Broad M2 supply was seen dipping marginally to 8.4%
year-on-year, from 8.5% in June. Annual growth of outstanding
loans was seen edging down to 12.8% from June's 13.0%.
    The People's Bank of China (PBOC) has been pressing lenders
for over a year to extend more help to cash-strapped companies
and offer more medium- to long-term loans to the manufacturing
sector. But banks are reluctant to lend to private sector firms
due to the uncertain business outlook and rising defaults.
    Economists at ANZ estimated last week that only 24% of bank
loans in June were related to investments in real economic
activity, down from 55% in January, with property and "zombie"
companies still taking up a large share of available funds.
    Many smaller firms are also in no mood to borrow as domestic
and export orders falter and profit margins are squeezed by
rising costs. Economic growth cooled to a 27-year low in the
second quarter.
    July also saw renewed worries over bad debts at China's
smaller banks, after regulators sought to restructure the
troubled Bank of Jinzhou  0416.HK  due to liquidity problems.
However, there were no reported spikes in short-term borrowing
costs or interbank funding crunches like those which occurred in
late May and June after regulators took over Baoshang Bank.
    
    LOTS OF SUPPORT OPTIONS
    Analysts expect total social financing (TSF), a broad
measure of credit and liquidity in the economy, to fall to 1.5
trillion yuan in July from 2.26 trillion in June.
    TSF includes off-balance sheet forms of financing that exist
outside the conventional bank lending system, such as initial
public offerings, loans from trust companies and bond sales.
    China has allowed local governments to issue more debt this
year as part of a plan to accelerate infrastructure spending and
stoke domestic demand.
    But local governments are already close to exhausting their
annual bond quotas and special bond issuance dropped back last
month as a result, Capital Economics said in a note.
    Equity issuance, however, likely strengthened last month as
the first batch of companies listed on China's new Nasdaq-style
STAR stock market, it added.
    Sources told Reuters recently that China is keeping all of
its economic policy tools with reach as the trade war with the
United States gets longer and costlier, but still see more
aggressive action such as interest rate cuts as a last resort if
the dispute gets even worse. urn:newsml:reuters.com:*:nL4N24K2GU
    Highlighting debt concerns, the Politburo, a top
decision-making body of the Communist Party, took the unusual
step last month of announcing it would not use the property
market as a form of short-term stimulus. urn:newsml:reuters.com:*:nL4N24W03E 
    But analysts say continued support is needed, especially
after a month-long trade truce with the United States was
shattered last week, when President Donald Trump vowed to impose
a 10% tariff on $300 billion of Chinese imports from Sept. 1.
The move would extend levies to effectively all of the goods
China exports to the United States.
    To free up more funds for lending and accommodate local
government project financing, most analysts still expect the
central bank will cut banks' reserve requirement ratios (RRR)
further in coming months, on top of six reductions since early
2018. 
    "We expect more liquidity offering by the PBOC, including
100 bps RRR cut by end 2019, which can help lower market
interest rates, but we still do not expect any benchmark rate
cut," economists at UBS said.
    They also expect more funding support for infrastructure to
help boost infrastructure investment in the second half of this
year.
    A few analysts also expect cuts in short-term or money
market rates if growth continues to weaken, especially if the
U.S. Federal Reserve eases policy further. The People's Bank of
China does not always follow Fed moves, however, and left rates
unchanged when U.S. benchmark rates were cut late last month.
    
($1 = 7.0465 Chinese yuan renminbi)

 (Reporting by Lusha Zhang and Ryan Woo; Editing by Kim Coghill)
 ((LushaZhang1@thomsonreuters.com; 8610-56692106;))