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China’s central bank chief has warned markets to expect weaker credit growth, in a speech that highlighted the impact of a prolonged property slowdown on the world’s second-largest economy.
Pan Gongsheng, governor of the People’s Bank of China, told a major financial forum in Shanghai that real estate and local government financing vehicles account for a large share of China’s Rmb250tn ($34.5tn) of bank lending. “Not only is this area no longer growing, but it is actually declining,” he said.
“It is natural that the growth rate of credit has declined alongside a shift from high-speed to ‘high-quality development’,” he told the Lujiazui Forum, referencing the high volume of existing lending. “Many loans in China are not efficient,” he added.
The comments from Pan, who has led the PBoC since 2023, reflect a broader official focus on the search for new growth, with a real estate slowdown that began in 2021 continuing to weigh on economic activity.
New data this week showed that new home prices in China fell 0.7 per cent month on month in May, the fastest rate of decline in a decade, adding to concerns for policymakers a month after they unveiled a plan for government enterprises to purchase excess properties directly.
Official data on “total social financing”, a broad gauge of credit growth, has also shown signs of weakness this year. It showed a rare credit contraction in April, its first decline since comparable data began in 2017, according to PBoC releases, while new data released this week showed a weaker than expected rebound in May.
Slower than expected expansion of new loans this year has added to signs of sluggish business activity and weak credit demand. Household loans, a proxy for mortgages, have also been shrinking on the back of weak confidence in the property market. Pan said in his speech it would be difficult for the growth rate of all credit to exceed 10 per cent, as it had in the past.
Markets have closely watched the government’s monetary approach, which has largely remained cautious, despite calls for greater stimulus in an environment where prices have frequently entered deflationary territory.
Official borrowing rates have been gradually cut over recent years, and a medium-term lending facility rate was left unchanged on 2.5 per cent on Monday.
Analysts at CreditSights this week said they expected the reserve ratio requirement, which influences bank lending, to be cut by a further 20 basis points, although they added this could be delayed to later this year, given depreciation pressure on the renminbi.
Pan said in his speech that the PBoC was not changing its stance, which he said was supportive, and added that measures to further regulate market behaviour would help improve the efficiency of monetary policy transmission.
Zhou Hao, an analyst at Guotai Junan Securities, said in emailed comments that the PBoC was “avoiding the perception of aggressive easing that could fuel inflation or financial stability risks,” and was also “using a range of monetary tools to fine-tune monetary conditions”.
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