China bank lending up in July on stock market rescue

[BEIJING] China's bank lending rose in July, the central bank said on Tuesday, as money poured into a massive rescue for the country's stock market.

Domestic banks extended new loans of 1.48 trillion yuan (S$327 billion), up from 1.27 trillion yuan in June - almost twice the estimate of economists surveyed by Bloomberg News - the People's Bank of China (PBoC) said.

But total social financing, an alternative measure of credit in the real economy, hit 718.8 billion yuan last month, down from 1.86 trillion yuan in June and short of economists' forecast of 1.0 trillion yuan, according to Bloomberg.

"China's new yuan loans rose sharply ... as stock market rescue policy lifted new loans," ANZ economists Liu Li-Gang and Louis Lam wrote in reaction to the data.

Authorities have been aggressively supporting shares after China's key Shanghai stock index plunged more than 30 per cent over three weeks from a June 12 peak before rebounding on the official intervention measures.

For the first seven months of this year, Chinese banks extended a total of 8.04 trillion yuan in new loans, up 2.15 trillion yuan from the same period last year, the PBoC said.

An unnamed central bank official said in a statement that government support for the stock market was one reason for the year-on-year spike.

"China's capital market had some volatility in recent days," the official said. "Monetary policy and the banking system took some temporary measures in July and the relevant operations had some impact on credit growth." The state-backed China Securities Finance Corporation, tasked with supporting the stock market, received about one trillion yuan in loans as part of the effort, Nomura economist Zhao Yang said in a comment on the lending data.

US investment bank Goldman Sachs estimated last week that the Chinese government has spent up to 900 billion yuan in the last two months to try to prop up stock prices.

Also on Tuesday, China's central bank devalued the yuan currency by nearly two percent against the US dollar, a surprise move marking the biggest decline since the currency was unpegged from the greenback in 2005.

Shanghai shares fell 0.40 per cent by the midday break despite the PBoC yuan move, which dealers said could boost exports and the overall economy.

AFP