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China new bank loans fall sharply in February

Chinese bank lending fell more than 40 per cent month-on-month in February largely on seasonal fluctuations, official data showed on Thursday (Mar 9), beating expectations amid concerns that a flood of credit is increasing risks in the world's second-largest economy.

BEIJING: Chinese bank lending fell more than 40 per cent month-on-month in February largely on seasonal fluctuations, official data showed on Thursday (Mar 9), beating expectations amid concerns that a flood of credit is increasing risks in the world's second-largest economy.

New loans extended by banks fell to 1.17 trillion yuan (US$170 billion), the People's Bank of China said on Thursday, a sharp drop from January's surge of 2.03 trillion.

But the figure beat median expectations of 950 billion yuan in a Bloomberg News poll, showing that firms' demand for credit stayed high.

New loans usually surge in January, when banks are issued fresh loan quotas, and the February figure was "stronger than most had anticipated", Julian Evans-Pritchard of Capital Economics said in a note.

"Excluding seasonality, credit growth actually did not slow," Yao Wei of Societe Generale in Paris told Bloomberg News. "Although policy makers have repeatedly pledged to be less dovish, credit data continue to suggest a quite lenient policy setting."

Analysts have been raising the alarm over the surge in China's debt as Beijing has flooded the market with credit to prop up economic growth.

In an attempt to reduce risks, the central bank has rolled out monetary tightening policies in recent weeks, raising short-term borrowing rates for the first time since 2013.

In a separate statement the central bank said total social financing - an alternative measure of credit in the real economy - rose 1.15 trillion yuan in the month, less than a third of January's massive 3.74 trillion yuan surge.

Observers said that higher interest rates in the bond and shadow-banking markets had driven more companies to seek traditional bank loans.

"This pick-up in loan growth appears to reflect a continued shift away from non-bank financing in favour of traditional bank loans in response to higher market interest rates," said Evans-Pritchard.

But he added that banks will likely raise interest rates for new borrowers as funding costs rise, cooling credit growth later this year.

Figures released Thursday showed producer prices climbed at their fastest rate since 2008 in February, raising hopes China may begin to export much-needed inflation to the global economy.

But there are concerns about possible trade tensions as President Donald Trump settles into the White House. He has threatened to declare China a currency manipulator and slap punitive tariffs on its goods.