Poor Chinese lending figures spark a sharp selloff on the country’s stock markets amid fears that monetary stimulus has not had the desired effect

This article is more than 4 years old

This article is more than 4 years old

Asia Pacific stock markets have suffered another punishing day after continued falls in the price of oil and poor Chinese bank lending figures undermined confidence.

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After two weeks of losses, a rally in crude prices and on Wall Street had promised to bring some cheer to the region’s battered investors.

But Brent crude fell back 20c to $30.68 a barrel on Friday and pushed stock markets into the red helped by data showing that fresh lending by Chinese banks was weaker than expected in December and well down on the previous month.

Banks extended 597.8bn yuan ($90.76bn) of new loans in the final month of 2015, reinforcing concerns that Beijing’s efforts to boost borrowing via monetary easing are not transmitting to the real economy.

“The fall in new yuan loans showed there was little demand for investment and reflected sluggish economic performance in the real economy,” said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai.

“We are worried about deflation risks this year as companies’ profits would significantly worsen due to persistent falling prices,” he said, adding he expected more monetary easing in response.

The mainland Chinese stock markets fell sharply. The CSI300 index of Shanghai and Shenzen shares closed 3.2% lower, at 3118.73, while the Shanghai Composite index was down 3.5% at 2900.97.

China’s major share indexes have lost about 16% so far in 2016 and are not far from their 2015 lows, chalked up in August after losing more than 40% from early June.

In Japan, the Nikkei ended the day down 0.5% as Bank of Japan governor Haruhiko Kuroda reiterated that the country’s price trend was improving steadily reflecting a moderate economic recovery, and that he had no plan to expand monetary stimulus now.



The Australian ASX/S&P200 followed suit and closed down 0.34% while the Kospi index in Korea finished more than 1% lower. The Hang Seng in Hong Kong was down 1.3%.

Futures trading suggested the key European markets would open 20-30 points lower on Friday.

The People’s Bank of China (PBOC) set a slightly weaker mid-point rate for the yuan on Friday, but the fix has been broadly steady for more than a week, signalling a determination to hold the line against expectations of sustained depreciation.

Slight gains in early early trade put the yuan 0.1% up on the week, but it was still nearly 1.4% weaker against the dollar than it started the year and has lost nearly 5% since August.



The turbulent start to 2016, with the currency and stock markets tumbling, had stoked concerns that Beijing’s policymakers were in danger of fumbling as the country headed toward its slowest growth in 25 years.

The International Monetary Fund called on China to be clearer about its exchange rate policy.

“More clarity and communication around the exchange rate regime would be useful,” IMF spokesman Gerry Rice told a regular news briefing in Washington on Thursday.

Dealers expected the yuan would resume its decline if the central bank loosened its grip. The midpoint for the tightly managed currency was set at 6.5637 per dollar on Friday, weaker than the previous fix of 6.5616 but 253 pips stronger than Thursday’s closing quote 6.5890.

The spot market was changing hands at 6.5867 in afternoon trade, 23 pips firmer than the close. The spot rate is allowed to deviate 2 percent either side of the daily fix.

“The key for the spot rate’s move is the central bank’s attitude,” said a dealer at an Asian bank in Shanghai.

“Once it stops holding the midpoint, the spot rate is likely to drop back and break through 6.6 in the short-term.”

Offshore yuan liquidity was squeezed earlier in the week as a result of state-backed banks buying, at the central bank’s behest, to push overnight borrowing rates in Hong Kong to record highs, making it prohibitively expensive to bet against the yuan.

That squeeze has narrowed the gap with the onshore market, though on Friday the offshore yuan was trading a little weaker, and about 0.4 percent below the onshore spot at 6.6135 per dollar.

Traders said the offshore yuan weakened probably because of strong dollar demand, and expectations that the yuan would weaken going forward.