A surprise slowdown in lending by Chinese banks in October could be evidence that China is preparing to lean into the wind instead of stoking up another big round of credit growth.
Data released Monday showed Chinese banks extended 505 billion yuan ($81.1 billion) in new loans for the month, down 14% from levels a year earlier and well short of expectations from a Dow Jones Newswires survey for 590 billion yuan in loans during the month.
In a note following the data release, Société Générale said the weak figures indicated that the People’s Bank of China intends to cap the lending growth for the year at 8.5 trillion yuan, as previously targetted.
Meanwhile, Barclays also noted a change in tone at China’s central bank, saying the PBOC’s recently released quarterly report on monetary policy revealed that an important shift had taken place.
In particular, assumptions about how fast the economy can grow without sparking inflation, also known as the potential growth rate, was now thought to be much lower than earlier believed.
In fact, the currently rate of GDP growth could be just about right.
If so, it would represent a major ratcheting down in growth potential. It would also help to explain a number of changes, including why the PBOC was relatively cautious during the recent slowdown compared to the radical steps taken after the 2008 outbreak of the global financial crisis, according to Barclays, which labeled the quarterly lending report a “turning point” in Chinese monetary policy.
The new policy priority is to “maintain stable monetary conditions,” Barclays said.
“This is partly due to lessons learned from the 4 trillion yuan stimulus policy [following the 2008 crisis, in which] aggressive monetary and credit easing led to an increase in inflation and [related] pressures, asset bubbles, and non-performing loans,” Barclays said.
The research said the PBOC was really now at neutral stance and would likely be less accommodative in coming quarters — baring a huge slowdown — than some observers expect.
Marketwatch
