Chinese Banks Are Begging For Borrowers

Issue 125

Chinese authorities are facing an uphill battle in convincing companies and households to boost borrowing as long as Covid outbreaks and lockdowns continue to crush confidence.

After loan growth weakened in April to the worst level in almost five years, several indicators suggest the data for May won’t be much better. Housing sales have continued to slump, indicating a lack of appetite for mortgages and subdued credit demand among developers and sectors linked to the property industry. Struggling to find enough clients, banks have been swapping bills with each other just so they can meet regulatory requirements for corporate lending.

“The sluggish credit demand points to worsening expectations among market entities and slowing business expansion,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd. That suggests China’s economic rebound might be weak even in the third quarter, as many investment activities can only start after loans are secured.

The scenario is a challenging one for policymakers, who are pushing banks to lend more. The People’s Bank of China told lenders last week to "go all out" in increasing loans. It’s also pushed banks to lower mortgage rates and called on them to stabilize lending in the property sector.

The upshot is that the financial system is awash with cash, and any monetary easing from the central bank -- such as interest rate cuts and liquidity injections-- will likely prove completely ineffective in spurring growth in the economy.

Source: Bloomberg