Chinese bank loans beat expectations as Beijing props up growth

BEIJING Tue Jul 15, 2014 11:18am EDT

100 Yuan notes are seen in this illustration picture in Beijing November 5, 2013.  REUTERS/Jason Lee

100 Yuan notes are seen in this illustration picture in Beijing November 5, 2013.

Credit: Reuters/Jason Lee

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BEIJING (Reuters) - Beijing stepped up efforts to re-energize China's economy in June, pumping in more money and pressing banks to extend more loans, but analysts say more stimulus will be needed to sustain recovery.

Data over the past week offers some signs that the world's second-largest economy steadied in the second quarter as government stimulus measures kicked in, though exports remained sluggish, piling pressure on Beijing to stoke domestic demand.

A cooling property market also points to risks in the second half and could well determine the scope of further policy easing, after Premier Li Keqiang promised the economy would grow by at least the targeted 7.5 percent this year.

Separate remarks by Chinese central bank officials, published in local media on Tuesday, suggested policy loosening is underway with more to come.

Chinese banks are likely to make new loans worth 9.5 trillion yuan ($1.5 trillion) this year in their strongest lending surge since the 2009 global financial crisis, Sheng Songcheng, the head of the statistics department at the central bank, was quoted as saying.

Chinese financial news service Great Wisdom also quoted Sheng as saying banks have increased lending to a cooling property market this year in a show of "forceful" support.

Another Chinese news report quoted Xu Nuojin, a deputy director at the statistics department at the central bank, as saying China should cut taxes, lower companies' borrowing costs, and reduce the amount of cash that banks must hold as reserves to lift its economy.

Data shows Chinese banks, which Beijing uses as a policy tool, lent a further 1.08 trillion yuan ($174 billion) in June, nearly 20 percent more than market expectations.

Broad M2 money supply jumped 14.7 percent last month from a year earlier - the highest in 10 months, the People's Bank of China said in a statement on its website, higher than a forecast of 13.5 percent in a Reuters poll of economists.

"While a fall in short-term lending rates hinted at a higher supply of funds during the month, the money swirling in the market reflects the urgency ... to ramp up economic activity," said Chester Liaw, an economist at Forecast Pte in Singapore.

Outstanding yuan loans grew 14 percent from a year ago, slightly more than expected, while total social financing, a broad measure of liquidity in the economy, swelled to 1.97 trillion yuan in June from 1.4 trillion yuan the month before.

That was "a major upside surprise," Liaw said.

The strong growth in money supply in June "is an explicit loosening of (monetary) conditions. Some of this is seasonal. At the end of the quarter there was demand for cash. And evidently, the authorities supplied it," said Tim Condon, economist at ING Bank in Singapore.

Other economists were more cautious.

"We believe that June's rebound in credit growth has more to do with a weak base for comparison due to the cash crunch last year than with the current policy stance," Julian Evans-Pritchard, China economist at Capital Economics, said in a note.

UPBEAT ON EXPORT OUTLOOK

After a shaky start to the year, China's economy has shown signs of picking up pace after government measures including reserve requirement cuts for some banks and more spending on railways and public housing. Government spending surged 26.1 percent in June from a year earlier to 1.65 trillion yuan.

China's Commerce Ministry said on Tuesday export growth should pick up in the second half of the year compared to the first six months, making it likely that China will achieve its 7.5 percent trade growth target for 2014.

“We expect both export and import growth will improve remarkably in the second half (compared with) the first half," Shen Danyang, ministry spokesman told reporters at the monthly briefing, quoting surveys." Stripping off last year’s high base effect of abnormal trade growth, I think we are able to achieve the 7.5 percent annual trade growth target in 2014 through efforts."

However, many economists see the rebound as patchy. China's trade performance improved in June but still missed market forecasts, and inflation is cooler than expected.

China's foreign direct investment inflows set an annual pace of 2.2 percent in the first six months and were up only modestly for June.

The government is due to release second-quarter GDP growth on Wednesday, along with data on fixed-asset investment for the first half and factory output and retail sales for June.

Economists polled by Reuters expected annual GDP growth of 7.4 percent in the second quarter, matching the 18-month low in the first quarter, though Premier Li said last week that growth had improved in April-June.

($1 = 6.2103 yuan)

(Reporting by China economics team; Editing by Kim Coghill/Ruth Pitchford)

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