Chinese new loans rebound in September, credit conditions still tight

China’s new bank loans rebounded in September after dipping in the two previous months, central bank data showed, but overall credit conditions stayed tight in an economy chilled by an ongoing tariff war with the United States.

Growth of outstanding total social financing, a reliable gauge of overall credit conditions, slowed to 10.6 percent in September from 10.8 percent in August, making it, according to Capital Economics, the weakest since 2005.

“We think that officials will soon need to turn to other measures, such as cuts to benchmark interest rates or a relaxation of constraints on off-budget local government borrowing, in order to shore up credit growth and economic activity,” Chang Liu, China Economist for Capital Economics in London, said in a note.

A Reuters poll published on Tuesday, however, showed most analysts expected the benchmark lending rate to be left unchanged at 4.35 percent through to the end of 2019, as the central bank focuses on other monetary policy levers, such as interbank rates.

A key factor behind the tight credit conditions is an ongoing crackdown on shadow financing, which has been falling since early 2017 and has put most strain on private firms traditionally shunned by big state banks.

Policymakers have in recent months unveiled measures to lower financing costs, cut taxes and fast-track more infrastructure projects, although analysts believe such modest stimulus may take time to put a floor under the slowing economy.

Third quarter gross domestic product data due to be released on Friday is expected to show growth at its weakest since the global financial crisis, due in part to the impact of the trade war with the United States, according to a Reuters poll.

To stimulate bank lending, the People’s Bank of China has cut reserve requirements for lenders four times this year, with the latest cut taking effect on Oct. 15.

The data released on Wednesday showed Chinese banks extended 1.38 trillion yuan in net new yuan loans in September, more than analysts had expected and up from the previous month.

Total new bank loans in the first nine months of the year jumped 17.7 percent from a year earlier to 13.14 trillion yuan, and were on track to make a record year, eclipsing last year’s 13.53 trillion yuan, even though rising defaults have made banks more cautious.

But the increased lending barely compensates for shrinking “shadow” loans, one of the major targets of regulators as they seek to curb systemic financial risks.

Combined trust loans, entrusted loans and undiscounted bankers’ acceptances, which are common forms of shadow banking finance, fell by 289 billion yuan in September, following a drop of 267.4 billion yuan in August and a slide of 1.75 trillion yuan in the first seven months.

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