The disappointing economic backdrop to China’s policy dilemma

The disappointing economic backdrop to China's policy dilemma
Headquarters of the People’s Bank of China (PBOC) in Beijing, China. (File photo: REUTERS/Jason Lee)

China’s central bank cut its interest rates on Monday (Aug 15) for the second time this year, but analysts suspect it will do little to spur lending in an economy awash with cash but lacking in consumer demand and business confidence.

The People’s Bank of China (PBOC) lowered the rate on its one-year and 7-day lending facilities by 10 basis points after a string of data for July painted a gloomier economic picture than previously.

Housing prices fell. Property investment also sank and new construction was weak.

China’s retail sales grew 2.7 per cent in July, compared with 3.1 per cent in June, pointing to slowing consumer spending.

Industrial production also missed expectations. Concerns over fresh COVID-19 flare-ups, worries about jobs and the crisis in the property sector have dented borrowing by companies and consumers.

Chinese banks extended 679 billion yuan (US$101 billion) in new yuan loans in July, less than a quarter of June’s amount, according to data released by the PBOC last week.

Most of China’s recent monetary and fiscal stimulus has been flowing into savings. Chinese households added 10.3 trillion yuan in deposits in the first half of 2022.

According to Refinitiv Lipper, the total net assets of Chinese mutual funds has surged to a record US$1.58 trillion at the end of June, 6.7 per cent higher than at the start of the year.


In the stock market, outstanding margin loans have climbed to a four-month high of 1.64 trillion yuan, while equity mutual funds have attracted US$7 billion in the last two months.
Source: Reuters/ic