Report: Weak信贷 demand, PBOC urges banks to increase lending in May

Reuters, citing sources, reports that China's central bank last week gave oral guidance to some large state-owned banks to increase lending in May.

This extraordinary window guidance highlights the weakness of credit demand in the real economy. In April, new yuan loans in China experienced a contraction for the first time in nine months. Credit data, seen as a barometer of the vitality of the world's second-largest economy, is now being closely watched by all market participants.

China's economy grew by 5.0% year-on-year in the first quarter, hitting the upper limit of its annual growth target, but growth momentum weakened at the beginning of the second quarter. The prolonged real estate slump domestically has sapped consumer confidence, and the reluctance of the private sector to invest has also dragged down credit demand. Meanwhile, the three-month-long war between the US and Israel in Iran has driven up energy costs, exposing the vulnerable consumer economy of China to external risks.

The current policy support is shifting from traditional infrastructure and real estate to technology and green energy. However, credit demand in new areas is not yet sufficient to support the overall loan size. Moreover, as loan default rates rise, banks are tightening lending standards for small and medium-sized private enterprises and households. Xiaoxi Zhang from Gavekal Dragonomics pointed out that although regulators want banks to expand consumer credit, it is clearly more important for banks to maintain risk control.

Due to insufficient credit demand from the real economy, commercial banks have had to fill lending targets by purchasing short-term commercial bills. As inflationary pressures build, analysts expect the People's Bank of China will not rush to loosen monetary policy.

The People's Bank of China stated that the market should view the slowdown in credit growth with a mature and rational mindset. With direct financing accelerating, the total amount of social financing remains reasonably growing.