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China Sept lending beats forecasts but FX reserves point to Q3 outflows

Chinese banks made 857.2 billion yuan (US$140 billion) worth of new loans in September, beating market expectations in a sign that demand for credit may be picking up - PHOTO: AFP

[Beijing] Chinese banks made 857.2 billion yuan (US$140 billion) worth of new loans in September, data showed on Thursday, beating market expectations in a sign that demand for credit may be picking up.

But a drop on China's foreign exchange reserves in the third quarter signalled speculative money outflows amid increased worries about the country's economic slowdown.

Economists polled by Reuters had expected new loans totalling 730-735 billion yuan last month, an increase from 702.5 billion yuan in August.

The People's Bank of China (PBOC) has been steadily easing policy this year by cutting reserve requirements for selected banks and guiding short-term money market yields lower to help bring down borrowing costs for the real economy.

Worries that a sudden fall-off in credit supply could further hobble China's shaky economy were reinforced in July when total social financing - a broad measure for liquidity in China - unexpectedly hit a six-year low. "The authorities will likely place more importance on financing data in the coming months, especially in light of the relaxation of mortgage rules and the cuts in the 14 day repos, to gauge lending appetites before deciding whether to introduce more easing measures," said Chester Liaw, an economist at Forecast Pte Ltd in Singapore.

Last month, the central bank reportedly injected a combined 500 billion of liquidity into the country's top banks via a policy tool known as the Standing Lending Facility (SLF) to support the economy.

Data on Wednesday showed China's consumer inflation slowed more than expected in September to a near five-year low, adding to concerns that global growth is cooling fast unless governments take bolder measures to shore up their economies.

Broad M2 money supply rose 12.9 per cent in September from a year earlier, the People's Bank of China said in a statement on its website, in line with market expectations.

Double-digit growth rates for both M2 and outstanding loans that were much faster than China's economic expansion have fed concerns that they were driving up debt levels and fuelling ever-less efficient investment.

Such fears were heightened after the 2008/09 global financial crisis when China's central and local governments went on a spending spree to boost the economy, leading to a massive rise in debt levels.

Outstanding yuan loans grew 13.2 per cent from a year earlier, in line with expectations.

The central bank also said China's total social financing aggregate, a broad measure of liquidity in the economy, was 1.05 trillion yuan in September, versus 957.4 billion yuan in August.

Officials blame off-balance-sheet financing - such as trust and bank bills - for pushing up borrowing costs. An ongoing crackdown by Beijing on the shadow banking sector may have forced banks to shift more loans back onto their books.

While loan demand softened along with the economy, recently erratic loan and financing data could also be due in part to seasonal factors, analysts say.

China's foreign exchange reserves, the world's largest, fell slightly to US$3.89 trillion at the end of September from US$3.99 trillion at the end of June, central bank data showed.

The decline in foreign reserves signalled "hot money"outflows from China amid increased market jitters about whether the world's second-largest economy may be at risk of a sharper slowdown, analysts said. "We actually had a much higher trade surplus so that means there must be a lot of outflows outside the trade account or current account," said Kevin Lai, senior economist at Daiwa Capital Markets in Hong Kong. REUTERS