Drop in New Loans signal slowing down of Chinese Economy

China’s new yuan loans fell 14 percent in October from a year earlier, damping signs the world’s second-biggest economy is recovering after a seven- quarter slowdown.

Banks extended 505.2 billion yuan ($81.1 billion) of local- currency loans in October, the Beijing-based People’s Bank of China said on its website today. That compares with the median estimate of 590 billion yuan in a Bloomberg News survey of 28 analysts and 586.8 billion yuan a year earlier.

Today’s report compares with data last week that showed an improving economic outlook as the ruling Communist Party holds a congress in Beijing to anoint new leaders. China needs to prepare for prolonged challenges including the debt turmoil in some countries and sluggish global growth, Zhang Ping, head of the National Development and Reform Commission, said Nov. 10.

“Weaker lending suggests banks’ caution in providing financing” amid “uncertain” circumstances outside China and lower corporate profitability, said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong.

The Shanghai Composite Index was up 0.2 percent as of 10:35 a.m. local time.

Aggregate financing, an indicator designed to capture additional funding sources, including trust loans and bond and stock issuance, was 1.29 trillion yuan in October, up 63 percent from a year earlier and down from 1.65 trillion yuan in September. In the first 10 months of 2012, the gauge rose about 23 percent to 13 trillion yuan, today’s statement showed. The statement didn’t include money-supply data.
Implementing Stimulus

The year-over-year increase in aggregate financing suggests that “there will be enough funds to ensure implementation of stimulus measures and that growth acceleration will continue,” Kowalczyk said.

Analysts’ estimates for new loans ranged from 550 billion yuan to 801.6 billion yuan. Lending totaled 623.2 billion yuan in September.

Expansion in new loans was at a “reasonable scale” in September and October, indicating that the practice of injecting funds into the market through reverse-repurchase agreements has ensured that the banking system has abundant liquidity to meet needs in the economy, Financial News, a PBOC publication, said in a commentary today.

Bank of China Ltd., the nation’s fourth-largest lender by market value, forecasts that loan quality will improve next year as the economy stabilizes, President Li Lihui said. While facing “some volatility,” measures of soured loans will stay in an “excellent range” at the Beijing-based lender, Li said in an interview last week during the party congress, without providing figures.

Via – Bloomberg

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