China’s Loan Growth Rebounded in May After PBoC Prods Banks

By Geoffrey Smith — Credit growth in China picked up in May, after the central bank leaned on the country’s commercial banks to do more to support an economy suffering from COVID-19 lockdowns and a grinding real estate crisis.

The People’s Bank of China said Total Social Financing, the broadest measure of lending in the economy, grew by 2.79 trillion yuan ($417 billion) after slumping to only 910 billion yuan a month earlier, when the key financial hub of Shanghai joined the list of regions and cities under COVID-19 lockdown measures.

New loans issued rebounded to 1.89 trillion yuan from only 645 billion a month earlier, the lowest total in over four years. M2 money supply growth also accelerated to 11.1% on the year, from 10.5%, defying expectations for a slowdown to 10.4%.

The PBoC had urged banks in May to lend more to small- and medium-sized enterprises, many of which operate in a service sector that was particularly hard hit by the lockdowns. It had followed that up by cutting its reference rate for five-year mortgages, although the direct economic impact of that was seen by analysts as limited. The PBoC’s measures were part of a broader, coordinated fiscal and monetary support package, in which the fiscal measures were more important in supporting demand.

Hopes for broader support from the central bank in the form of interest rate cuts rose on Friday after Beijing said consumer inflation stayed at 2.1% in May, bucking the global trend of higher prices. Producer price inflation also eased to a 13-month low of 6.4%.

Analysts have had to slash their growth forecasts for China this year as lockdown measures have kept nearly 500 million people away from shops, restaurants, trains, and, in many cases, workplaces for the last two months. The Organization for Economic Cooperation and Development cut its forecast to 4.4% on Thursday from an earlier estimate of 5.1%. The government’s forecast is still for 5.5%.

Hopes for a sustained revival in economic activity had risen after first Shanghai and then Beijing relaxed their restrictions on mobility in the last couple of weeks. However, Shanghai authorities put over half of the city’s 25 million inhabitants under fresh restrictions on Friday after detecting 11 cases of COVID-19 in what appears to be a new outbreak.

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