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10Aug/17Off

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China's bank lending in August over doubled from your previous month, but analysts said most of the gain was due to strong mortgage demand, contributing to evidence that Chinese companies are increasingly unwilling to make new investments.

The figures, as well as other data this week, paint an image of the economy which is improving slowly but increasingly dependent on a housing boom and government spending for growth.

Chinese banks extended 948.7 billion yuan ($142.23 billion) in 房貸 in August, well above expectations, while broad M2 money supply (M2) also grew with a more-than-expected 11.4 percent from your year earlier, according to central bank data on Wednesday.

New bank lending rebounded sharply from July's 463.6 billion yuan, that has been the best in two years, while M2 quickened from July's 10.2 percent rise, which was the weakest in 15 months.

The central bank has pledged to help keep policy slightly loose, but sources say it is actually reluctant to cut rates or bank reserves again inside the near term amid evidence that companies and banks are hoarding cash rather than investing it.

"A renewed pick-up in credit growth recently will increase the growing sense among investors how the near-term outlook for China’s economy is rather bright," said Julian Evans-Pritchard at Capital Economics.

"Credit growth remains to be likely to slow over coming months because the PBOC refrains from further easing and focuses more about credit risks. Though with recent activity data also strengthening, we expect economic growth to boost across the remainder of the year."

Data on Tuesday showed China's factory output and retail sales also grew faster than expected in August as a strong real estate market plus a government infrastructure spending spree underpinned development in the world's second-largest economy.

But August readings also highlighted imbalances from the economy, with private investment growth at record lows and exports still sluggish.

China's increasingly reliance on your property market can be another major concern, as more cities impose restrictions on home purchases inside the face of sharply rising house prices, threatening to terminate a near one-year rally.

A sharp price correction would enhance strains on banks that happen to be already wrestling with growing quantities of bad loans.

Household loans, mostly mortgages, taken into account 71 percent of total new bank loans in August, though they were down from greater than 90 % in July, data showed.

"Home loans remain the main driver of loan growth, according to booming real estate market and weak loan demand from corporates," David Qu and Raymond Yeung at ANZ said in the note.

Outstanding yuan loans grew at 13 percent by month-end on an annual basis.

Analysts polled by Reuters had expected new lending of 750 billion yuan, with outstanding loans seen rising 12.9 percent, and cash supply seen up 10.4 percent.

Total social financing (TSF), an extensive way of measuring credit and liquidity in the economy, jumped to 1.47 trillion yuan in August from 487.9 billion yuan in July.

TSF includes off-balance sheet sorts of financing which exist outside of the conventional bank lending system, such as initial public offers, 房屋貸款 from trust companies and bond sales.

M1 money supply, consisting of cash and short-term deposits, rose 25.3 percent in August from a year earlier. The widening gap between M1 and M2 growth has fueled concerns regarding a "liquidity trap" in dexrpky35 economy where companies remain cautious about investing irrespective of how much stimulus money policymakers pump in to the system.

"The rapid expansion of M1 money supply indicates corporates’ preference of holding cash as an alternative to investment. This is consistent together with the slowing trend in fixed asset investment from the private sector," ANZ said.

Chester Liaw, an economist at Forecast Pte Ltd in Singapore, said the spread between M1 and M2 growth narrowed to 13.9 percentage points from 15.2 recently but "remains at elevated levels."

The PBOC is concentrating on annual M2 expansion of around 13 percent this year, pointing to continued accommodative policy as Beijing pledges to embark on painful economic restructuring involving state-owned enterprises in key industrial sectors.

Policy insiders have claimed that evidence companies and banks are hoarding cash, alongside concerns about property market and also the yuan's stability, has reinforced policymakers' view there is not any major benefit in easing policy further.

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