LISTEN TO ARTICLE 2:33 SHARE THIS ARTICLE Share Tweet Post Email

Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify or Pocket Cast.

China’s credit growth slowed more than expected in October to the weakest pace since at least 2017 as weak corporate demand for credit combined with seasonal effects, signaling that efforts to prop up the economy through bank lending still aren’t working.

Aggregate financing was 618.9 billion yuan ($88 billion), the People’s Bank of China said Monday. That compares to about 2.27 trillion yuan in September and 737.4 billion yuan in the same month of 2018. The median estimate of economists was 950 billion yuan.

Slumping Credit Credit growth at slowest since at least 2017 Source: People's Bank of China

Key Insights

The data signal that as efforts to scrub risk out of the financial system continue, the People’s Bank of China’s efforts to funnel credit to the productive firms that need it are showing little success, as medium and long-term loans to non-financial firms hit the lowest this year.

People’s Bank of China’s efforts to funnel credit to the productive firms that need it are showing little success, as medium and long-term loans to non-financial firms hit the lowest this year. Financial institutions offered 661.3 billion yuan of new loans in the month, versus a projected 800 billion yuan.

Broad M2 money supply grew 8.4% from a year earlier.

Bank lending usually falls in October compared to the previous month as the week-long National Day holiday affects business activity. The completion of local government special-purpose debt sales has magnified the downward trend.

“The data itself is kind of expected in terms of the trend,” according to Commerzbank AG’s Zhou Hao. However, the market is concerned about two things -- that it hit another record low and that this means that banks seem to have no place to funnel money after lending to smaller and private firms earlier waned, he said.

China’s 10 year government bond yield extended its drop by 5 basis points to 3.22% after the data

What Bloomberg’s Economists Say.. “The anemic credit data -- coming on the heels of data showing deepening deflation in the industrial sector -- reinforce our expectations that the PBOC will continue to ease monetary policy” Chang Shu and David Qu -- For the full note click here

Get More

The data signal that the contraction in shadow banking deepened: Entrusted loans fell by 66.7 billion yuan, trust loans declined 62.4 billion yuan and undiscounted bankers acceptances fell 105.3 billion yuan.

Local government debt issuance was a net drag on the data in October, subtracting 20 billion yuan from total new financing as some debt matured.

Two thirds of yuan-denominated bank loans were borrowed by households in the month, while the borrowing by non-financial companies was the least in amount since August 2016.

— With assistance by Yinan Zhao, Xize Kang, and Tian Chen