In an uncomfortable push me/pull you, China’s banks are lending large amounts of cash to boost the near-term economic outlook, even as they increase the nations’ swelling pile of debt.
New yuan loans rebounded to 985.5 billion yuan ($150 billion) in May, the People’s Bank of China said, topping the median for 750 billion yuan in a Bloomberg survey and surpassing all 35 economists estimates.
Aggregate financing was 659.9 billion yuan last month, missing all but one of 28 forecasts and far short of the median for 1 trillion yuan.
The central bank’s dilemma is that it needs to keep credit flowing so economic growth isn’t derailed, but at the cost rising debt risks.
“The jump in new yuan loans shows the PBOC’s determination to support growth, and the shrinking shadow financing, seen in aggregate financing data, shows its awareness of the risks,” Zhu Qibing, a Beijing-based analyst at China Minzu Securities told Bloomberg. “The PBOC has too many targets, so it inevitably swings back and forth in policies.”
China’s debt load has swelled to about two and a half times gross domestic product, according to Bloomberg Intelligence estimates.
M2 money supply increased 11.8%, down from 12.8% a month earlier. The government is aiming for 13% M2 growth this year.
The combination of stronger-than-expected bank lending and weaker aggregate financing suggests there was a substantial reduction in alternative financing activities, Raymond Yeung, a senior economist with Australia & New Zealand Banking Group in Hong Kong told Bloomberg. “The higher-than-expected loans for May will reinforce our view that the PBOC will prefer not to stimulate massive loan growth,” he said. “The monetary policy stance will still be moderately accommodative.”