The disappointing economic backdrop to China's policy dilemma

Headquarters of the People's Bank of China (PBOC), the central bank, is pictured in Beijing, China September 28, 2018. REUTERS/Jason Lee/File Photo

Aug 16 (Reuters) - China's central bank cut its interest rates on Monday for the second time this year, but analysts suspect it will do little to spur lending in an economy awash with cash but lacking in consumer demand and business confidence. read more

The People's Bank of China (PBOC) lowered the rate on its one-year and 7-day lending facilities by 10 basis points after a string of data for July painted a gloomier economic picture than previously.

China's borrowing costs cut

Housing prices fell. Property investment also sank and new construction was weak.

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China's housing prices fall

China's retail sales grew 2.7% in July, compared with 3.1% in June, pointing to slowing consumer spending.

China's retail sales

Industrial production also missed expectations. Concerns over fresh COVID-19 flare-ups, worries about jobs and the crisis in the property sector have dented borrowing by companies and consumers.

Chinese banks extended 679 billion yuan ($101 billion) in new yuan loans in July, less than a quarter of June's amount, according to data released by the PBOC last week. read more

China's social financing

Most of China's recent monetary and fiscal stimulus has been flowing into savings. Chinese households added 10.3 trillion yuan in deposits in the first half of 2022.

China's bank deposits

According to Refinitiv Lipper, the total net assets of Chinese mutual funds has surged to a record $1.58 trillion at the end of June, 6.7% higher than at the start of the year.

Reuters Graphics

In the stock market, outstanding margin loans have climbed to a four-month high of 1.64 trillion yuan, while equity mutual funds have attracted $7 billion in the last two months.

China margin lending
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Reporting by Patturaja Murugaboopathy; Additional Reporting by Gaurav Dogra in Bengaluru; Editing by Vidya Ranganathan and Edwina Gibbs

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