Chinese credit growth slows July

Credit growth in China rose slightly last month but economists expected the long-term downwards trend would reassert itself, weighing on growth.

New lending slipped in July, with net new local currency loans from China's banks rising by 826bn yuan, down from 1,540bn yuan for June, according to the People's Bank of China.

In parallel, so-called total social financing, the PBoC's preferred measure of credit, saw a smaller increase of 1,220bn yuan in July, down from 1,776bn in June.

According to Julian Evans-Pritchard at Capital Economics, that drop was entirely due to seasonal factors and followed the prior month's rush by loan officers to hit their six-month targets for lending.

Indeed, growth in outstanding bank loans and TSF accelerated to a 13.2% year-on-year clip in July, up from 12.9% and 12.8% in June, respectively, Evans-Pritchard pointed out.

Nonetheless, while the PBoC was likely now done tightening monetary policy, market rates were likely to remain elevated enough to keep credit growth slowing, he believed.

Freya Beamish at Pantheon Macroeconomics was of a similar view, noting how at 15.3% for July the rate of growth in M1 money supply was pointing to some near-term support for the economy.

On the other hand, a marginal slowdown in the quarterly rate of change of M1 to 14% suggested real GDP growth was likely to continue slowing into 2018.

Beijing was also likely to prop up growth in the third quarter through government spending, Beamish said.

Even so, she concluded that: "But for [the PBoC on hold and higher fiscal spending] to translate into significant second round effects and more robust growth early next year, we would need to see it sustained. Instead, we think the PBoC will again be forced to allow domestic interest rates to climb in the remainder of 2017 as global markets realise how serious the Fed is about hiking rates. This will again put the dampener on credit and monetary conditions within China."