Economist warns unusually low July take-up poses threat to annual credit supply target
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China's "big four" State-owned banks accelerated their pace of new loan issuance in August, which experts said reflected increased government concern over further economic slowdown.
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The "big four" - Industrial and Commercial Bank of China Ltd, China Construction Bank Corp, Bank of China Ltd and Agricultural Bank of China Ltd - extended 70 billion yuan ($11 billion) worth of yuan-denominated loans in the first half of August, a significant increase from the 50 billion yuan offered by the same stage last month, Shanghai Securities News reported on Monday.
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The figures follow an unexpected fall in new loan releases in July, when China's various financial institutions extended 540.1 billion yuan in local currency new loans - against an estimate of 700 billion yuan by the industry - the lowest level since last October.
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China Construction Bank said last week it would attach more importance to "consolidating growth" and planned to focus on its credit business in the second half of the year - a departure from the first half, when it had said it would focus on controlling finance to property development, and other risks.
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The announcement made CCB the first of the "big four" to publicly back the government's "consolidating growth" agenda.
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Deeply concerned about declining credit supply, the four banks have accelerated their loan issuance in line with government wishes, said Richard Huang, a partner of Boston Consulting Group and an industry expert.
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Wang Jun, an economist with China Center for International Economic Exchanges, a government think tank, added: "July's figure was unusually low. If that continues, China won't even achieve its annual credit supply target, which is why credit release has accelerated in August."
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Another sign of State support is that despite the big banks' larger credit feed, the percentage of medium- and long-term loans has not risen significantly, according to a report in Shanghai Securities News.
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"That demonstrates the banks' lack of confidence in their borrowers. If they were more confident, they would issue more medium- and long-term loans," said Huang.
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Shanghai Securities News, citing unnamed sources, said new loans in August should be 600 billion yuan, while Huang forecast 600 to 700 billion yuan.
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Policymakers' dilemma
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However, analysts said that a bigger concern for China's bankers and policymakers remains that the easing in liquidity still might not be enough to improve weak demand for loans from Chinese companies.
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"The lackluster real economy has made it difficult for companies to find decent projects.
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"So, there is no great need for them to seek lending," Wang said.
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Dropping profits and rising overcapacity have also hindered corporate expansion, further draining credit demand, Wang added.
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China's economic growth in the second quarter slowed to 7.6 percent, the lowest since early 2009.
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"On the supply side, though the central bank cut interest rates twice within a month, the reserve requirement ratio for China's banks is still relatively high. The high RRR, combined with other requirements such as the loan deposit ratio, has constrained banks' money supply."
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With this in mind, Wang suggested a cut in the reserve requirement ratio "as soon as possible".
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Jing Ulrich, JP Morgan Chase's managing director and chairwoman of global markets, China, ruled out any cut in the RRR before September, but forecast two possible cuts soon after.
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Price rises in commodities such as oil, soybeans and corn are adding to the upward pressure on the consumer price index - a further reason for the central bank to postpone further credit easing, she added.
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Several economic indicators, including falling export growth and levels of FDI, have encouraged some economists to be pessimistic about the economic outlook.
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Ulrich said GDP growth in the third quarter may not rebound, as many had predicted earlier, and that the economy might bottom out as late as the fourth quarter.
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