China’s new loans beat expectations in August but home mortgages still main driver

New loans grew more than expected in China last month but were still dominated by home mortgages driven by the housing boom in major cities, economists said yesterday.

The monthly total grew to 948.7 billion yuan (HK$1.1 trillion), compared with July’s total of 463.6 billion yuan, the central bank said. It beat expectations of 750 billion yuan from analysts polled by Reuters.

The loan data, released as part of the central bank’s monthly financial figures, accompanied a slew of better-than-expected economic numbers suggesting that economic growth is gaining a firmer footing and raising hopes that policymakers’ efforts to reverse the slide in private investment growth are starting to work.

“The stronger August credit data could help buoy short-term economic performance,” DBS economist Nathan Chow said. “But it’s questionable whether such stronger growth, mainly due to the real estate sector, is sustainable and healthy.”

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Household loans, mostly home mortgages, contributed to 71 per cent of total new bank loans in August, down from more than 90 per cent in July. Residential property sales surged 25.6 per cent by floor area in the first eight months from a year earlier.

The loans extended to non­financial entities, including corporates and other entities, rebounded to 120.9 billion yuan, taking 13 per cent of total loan growth.

“Home mortgages remain the major driver of loan growth, based on the booming housing market and still weak loan demand from corporates,” ANZ economists ­David Qu and Raymond Yeung said in a research note.

In August, total social financing – the broadest measure of credit supply, including loans, bank acceptance bills, corporate bonds and equity financing – grew by 1.47 trillion yuan, tripling July’s 487.9 billion yuan and surprising the market on the uptick.

A stronger economy will give policymakers more room to carry out painful supply-side structural reforms and cope with global headwinds.

Economists said they expected mainland authorities to keep a neutral monetary policy over the rest of the year for fear of asset bubbles and to fulfil commitments to deleverage.

China’s manufacturing sector expands, beating market expectations, official August data shows

In addition, the central bank will have less room to cut rates on rising ­expectations of an interest-rate increase by the US Federal ­Reserve later this year, a move that could draw capital back to the United States, draining ­liquidity in other markets, including China.

On Tuesday, the central bank resumed the 28-day reverse ­repurchase agreement in the interbank market, a tool to channel funds to banks, the first time since February. In the middle of last month, the central bank surprisingly restored the 14-day ­reverse repo, also for the first time since February.

Chen Ji, a senior researcher at Bank of Communications in Shanghai, said the newly restored 28-day reverse repo was mainly aimed at stablising liquidity for the coming public holidays and did not point to a shift in policy position. But others have argued it could mean tightening as the longer-tenor repo points to higher capital costs.