On May 11, 2024, people bought fruits at the farmers market in Lianyungang City, Jiangsu Province, China.
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BEIJING – As China’s economy enters the second quarter of this year, some indicators point to slower growth ahead if conditions are not reversed, raising expectations for an easing of monetary policy.
The National Bureau of Statistics will release April retail sales, industrial production and fixed asset investment data on Friday. Analysts polled by Reuters as of Tuesday expected a slight increase from March.
On the same day, China plans to issue its first ultra long bonds Beijing has launched a previously announced funding plan for major strategic projects totaling 1 trillion yuan ($138.25 billion) over a 30-year period. The Treasury Department has not yet specified what the first tranche of funds will be used for.
Part of the weakness is because demand in China is really sluggish right now.
Louise Loo, chief economist at Oxford Economics, said in a note on Tuesday that “with issuance continuing into November, some of the earnings payouts (and thus good for the economy) may only occur next year.” half a year.
The firm expects economic data released this week to show “weaker economic momentum”, confirming forecasts that the central bank will cut interest rates at the end of June.
The central government bond program comes as a drag from real estate persists, while businesses and consumers remain mostly conservative on spending.
The People’s Bank of China released new loan data for April over the weekend, showing a sharp decline in demand, with several indicators at their lowest levels in at least two decades.
Analysts at Goldman Sachs and other firms were quick to point out that the one-month figure was affected by changes in the way official data is calculated and a crackdown on loans used for financial purposes rather than business expansion.
“Part of the weakness is that demand in China is really sluggish right now,” Shan Hui, chief economist at Goldman Sachs China, said in a report on Sunday.
Wind information shows that the balance of RMB loans in April increased by 9.6% year-on-year, which was the same as in March and was the lowest level since records began in 1978.
Business loan demand declines
Official data from Wind Information showed that new bank loans to businesses and government agencies fell sharply in April from March, as did new loans to households.
Analysts at Clocktower Group are concerned that the 12-month moving average of new loans in both categories has begun to decline for the first time since the 2008 financial crisis.
“If the public sector is unable to support credit growth in a timely manner, future growth may decelerate sharply as economic entities will be forced to cut consumption and investment to meet debt obligations,” the company said in April.
According to a CNBC analysis of Wind data, new bank loan categories (including businesses) increased slightly in April from March, based on a 12-month moving average, while new home loans declined.
The data shows that while the amount of household loans has fallen below 2019 levels, the amount of new business loans is still much higher than in 2019.
An April China Beige Book survey found that corporate borrowing fell and manufacturing demand increased, dragged down by the services sector. The overall decline came despite more loans being approved and lower interest rates, making borrowing cheaper.
M2Official data from Wind Information showed that the money supply increased by 7.2% year-on-year in April, which was the lowest growth rate since 1986.
Pay less attention to credit expansion
“Looking ahead, growth in new yuan loans and M2 is likely to further gradually slow as the central bank emphasizes the weakening relationship between economic growth and credit expansion,” Goldman Sachs analysts said in a separate note on Sunday. Quarterly Monetary Policy Report Published on Friday.
“We still expect two more reserve requirement ratio cuts and one policy rate cut over the remainder of the year,” they said.
RRR refers to a bank’s reserve requirement, or the amount of cash a bank needs to hold on hand. Pan Gongsheng, governor of the People’s Bank of China, told reporters in March that there was room for further reductions in the deposit reserve ratio.
“Credit data for April was disappointing, but this was primarily due to regulatory changes rather than a sharp deterioration in underlying demand,” Macquarie’s chief China economist Larry Hu said in a note.
“Policymakers do not want another credit-driven recovery. Instead, they are happy to rely on exports and the new energy industry to drive growth, at least for now,” he said. He expects exports to maintain 5% growth this year, while noting that the automotive industry is performing well.
China’s exports remain strong despite rising trade tensions. Data released last week showed that exports increased by 1.5% year-on-year in April, in line with expectations, while import growth far exceeded expectations.
Separate data released over the weekend showed consumer prices recovered slightly in April. But factory price indicators continue to fall.
However, even as more cities relax home-purchase restrictions, real estate, which once contributed at least a quarter of China’s economy, remains a drag.
S&P Global Ratings said in a report early last week that property sales are increasingly moving to the secondary market, meaning developers have little to gain in a market that is still “looking for a bottom.”
Standard & Poor’s analysts expect China’s primary residential market to shrink 16% this year.
China’s house price index will also be released on Friday. Looking ahead, investors are awaiting a major government meeting scheduled for July for signals on long-term economic policy.
Morgan Stanley analysts said: “In addition, the People’s Bank of China recommended that it will study policies that can help digest existing housing inventory and improve the supply of new housing to stabilize the real estate market.”
“We believe this echoes the recent Politburo meeting messaging on the property market and suggests that monetary policy is likely to be used as part of support measures to help China cope with its massive property inventory.”
—CNBC’s Michael Bloom contributed to this report.
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