The People’s Bank of China (PBOC) announced on Wednesday that yuan-denominated new currency bank lending had reached 345.9 billion yuan (approximately US$48.32 billion) in July, marking the lowest level in 14 years. This figure fell significantly short of analyst expectations, as they had anticipated Chinese banks to lend a more substantial amount of 780 billion yuan during the same period. The latest lending data serves as a stark indication that the Chinese economy might be facing a protracted period of deflation, surpassing previous forecasts.
Societe Generale analysts noted, “The disappointing lending figures for July underscore the fragility of China’s economic recovery. With lending at its lowest level in 14 years, there is growing evidence of a substantial weakening in demand within China. This weakening demand trajectory could potentially extend the period of deflation beyond earlier predictions.” This follows a series of worrisome indicators, including China’s export sales and manufacturing activities taking a hit and the recent turmoil in the Chinese real estate market. The crisis in the real estate sector was further exacerbated by a major real estate development company defaulting on debt payments.
The PBOC revealed that the M2 money supply, encompassing cash in circulation and various types of deposits, experienced a 10.7% increase by the end of July, reaching a total of 285.4 trillion yuan on a year-on-year basis.
In terms of the M1 money supply category, covering cash flow and demand deposits, the figures as of the end of July indicated a 2.3% rise year-on-year, reaching a total of 67.72 trillion yuan.
Meanwhile, the M0 money supply, which pertains solely to circulating cash flow, demonstrated a 9.9% year-on-year increase, culminating in a total of 10.61 trillion yuan.
These developments in China’s lending and money supply landscape underscore the challenges the country’s economy currently faces. The low lending figures for July reflect not only a fragile economic recovery but also raise concerns about the potential for prolonged deflationary pressures. The interactions between lending patterns, money supply growth, and broader economic conditions will play a pivotal role in shaping China’s path forward and its ability to navigate these uncertain times.