China banks cut back on new lending in April

Beijing

CHINESE banks throttled back new lending in April after a record first quarter that sparked fears of more bad loans, but analysts said that the central bank will have to keep up policy support for the economy due to escalating trade tensions with the United States.

Global investors are closely watching to see how much more support Beijing injects into the economy to shore up growth. But expectations that it may be moving to a more cautious approach shifted wildly this week after a sudden blow-up in US-China ties. Chinese banks extended 1.02 trillion yuan (S$203.9 billion) in net new yuan loans in April, the central bank said on Thursday, well below analysts' expectations of 1.2 trillion yuan in a Reuters poll and March's surprisingly strong 1.69 trillion yuan.

The credit data was released unexpectedly early, hours ahead of the resumption of last-ditch US-China trade talks and a day ahead of a threatened US tariff increase on Chinese goods. The numbers are usually released between the 10th and 15th of every month.

US President Donald Trump stunned global financial markets on Sunday by announcing the tariff measures, which Beijing later said it will retaliate against. Investors had been betting on news of a trade agreement soon that would relieve pressure on both economies.

While China's April lending levels have tended to moderate from March in past years, investors had been looking to details of the data for clues on how much more policy easing to expect. Policy insiders told Reuters late last month that China's central bank is likely to pause to assess economic conditions before making any further moves to ease banks' reserve requirements, after better-than-expected March growth data reduced the urgency for action.

While the central bank's easing bias remained unchanged, the sources said that it was concerned that pumping too much cash into the economy could reignite bubbles over time, and it wanted to save some of its policy ammunition in case activity deteriorated again.

April's more modest lending levels suggested that Beijing was fine-tuning its policy stance last month, economists at Nomura said in a note. But they added: "We expect a rebound of money and credit in May. The sudden escalation of US-China trade tensions and the recent sharp drop of stock prices could convince Beijing to take further easing measures to bolster confidence and stabilise growth."

Thursday's data also showed that broad M2 money supply in April grew 8.5 per cent from a year earlier, in line with market estimates but dipping slightly from March. Outstanding yuan loans grew 13.5 per cent from a year earlier, slightly lower than expectations and March's 13.7 per cent. REUTERS