Analysis of China’s New Yuan Loans

Analysis of China’s New Yuan Loans

China's new yuan loans are expected to more than double in June compared to May, as per a Reuters poll. Chinese banks are predicted to have issued 2.25 trillion yuan in new loans last month, up from 950 billion yuan in May. This surge is attributed to the central bank's continuous policy support for the economy in the face of a fragile recovery.

Factors Behind the Increase

Although new loans usually rebound in June, this year's expected total is considerably lower than the 3.05 trillion yuan issued in the same month last year. Analysts are also anticipating a decline in several other key credit gauges, indicating a persistent weak credit demand. Factors such as economic shifts, reduced lending to the sector, and local government financing vehicles are contributing to the slowdown in credit expansion in China.

The central bank Governor, Pan Gongsheng, has assured a supportive monetary policy stance and emphasized the use of various monetary policy tools to foster a favorable monetary and financial environment for economic growth. However, a slowdown in China's credit expansion is deemed natural under the current circumstances.

While exports have shown resilience, manufacturing and activities have experienced a decline, prompting discussions about the need for additional stimulus measures. The economic activity in China is expected to moderate further in June, characterized by a slowdown in credit growth.

Anticipated Growth Figures

Outstanding yuan loans are projected to grow 9.0% in June from a year earlier, marginally down from the previous month. Broad M2 supply growth is expected to be at 6.8% in June, marking a record low. Total social financing (TSF), a comprehensive gauge of credit and liquidity, is estimated to have risen in June, likely supported by higher government bond issuance.

Future Reforms and Structural Changes

China is gearing up to release its second-quarter GDP growth data amid an uneven recovery. Analysts foresee a slight dip in year-on-year GDP growth from the previous quarter. A key meeting of top leaders is scheduled to take place from July 15 to 18, focusing on long-term structural reforms. Discussions may center around tax and fiscal reforms to alleviate the financial burden on debt-laden local governments and provide necessary support.

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China's new yuan loans are set to increase significantly in June, driven by ongoing policy support and economic dynamics. While challenges persist, the government is taking proactive measures to stimulate growth and implement structural changes for sustained .

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