If you were looking for signs that China is prepared to flood the economy with credit in an effort to push hard enough on a string to have an impact, you’ll be disappointed on Monday.
Total social financing for July came in at just 1.01 trillion yuan, missing estimates (1.63 trillion) by a country mile.
This will likely add to jitters that recent unfortunate “events” in the regional banking sector are affecting credit conditions. It could also be a sign that demand for credit simply isn’t there, something we talked at length about in February.
“The moderation in TSF was led by a notable decrease in bank loans and a larger contraction in off-balance-sheet lending”, Barclays writes, adding that the breakdown betrays a broad-based slowdown in shadow financing, as undiscounted bank acceptance bills, entrusted loans and trust loans all shrank.
Of course, slowing credit growth is also likely a sign that officials continue to see more risk than reward in blowing bubbles in a bid to bolster economic activity. Although the de-leveraging campaign has been deemphasized amid the trade war, it’s never been officially “canceled”, per se.
New yuan loans disappointed for July as well, printing just 1.06 trillion yuan, against consensus of 1.28 trillion. Loans to non-financial enterprises fell to the lowest in nine months.
The figures show a downturn in long-term corporate lending and a concurrent decrease in short-term loans and bills.
Credit demand could be impaired by the prevailing economic backdrop and uncertainty about the future (with the trade tensions obviously serving to cloud the outlook). Simply put, there’s just too much debt, and all that leverage is contributing to a situation where, to quote BNP, “a growing portion of the rise in credit simply serves interest payments”.
M2 growth also came up short at 8.1% for July, down from 8.5% the previous month and missing consensus (8.4%).
“The Chinese ‘credit impulse’ is fading again”, Nomura sighed, calling the numbers “disappointing across board for July”. The PBoC is “seemingly holding dry powder and anticipating the coming-winter” in the trade war.
That said, Nomura’s Ting Lu notes that “Beijing simply cannot afford to stop easing yet”.
As usual, some folks cited seasonality. “The drop was at least partly due to seasonal patterns with July’s credit growth usually slower than that in June”, Bloomberg notes. “The only month this year with a lower total was February, when Lunar New Year falls”.
All in all, this isn’t great news. It appears to cast doubt on Beijing’s resolve (and ability) to combat trade-related pressure on the domestic economy. As detailed last week, Chinese monetary policy is going to be front and center over the next two months as the PBoC weighs whether to cut rates and how to work any easing into an expected overhaul of the country’s two-track rate regime.