China July new loans stronger than expected, M2 at five-month high

By Kevin Yao and Fang Cheng

BEIJING (Reuters) - Chinese banks extended 1.45 trillion yuan ($210.69 billion) in net new yuan loans in July, above analysts' expectations, as a growing trade battle with the United States threatens to pile more pressure on the slowing economy.

China's policymakers have been pumping in more cash to encourage banks to lend to struggling firms, but there are signs that lenders are turning cautious as defaults rise, complicating efforts to channel money to sectors that need it.

Moreover, some China watchers fear Beijing's shift in focus to supporting growth may spell a return to its credit-fuelled spending binges of the past, undercutting a multi-year campaign to reduce risks in the financial system and a mountain of debt.

The stronger-than-expected lending data was released by China's banking and insurance regulator, as the central bank pumps out more liquidity into a slowing economy.

Analysts polled by Reuters had predicted new yuan loans of 1.2 trillion yuan, down sharply from June's 1.84 trillion yuan.

China's banks extended a record 13.53 trillion yuan in new loans last year, and lent 9.03 trillion yuan in the first half of this year, a jump of 13 percent from the same period of 2017.

Household loans, mostly mortgages, fell to 634.4 billion yuan in July from 707.3 billion yuan in June, according to the central bank's data.

Household loans accounted for 43.8 percent of total new loans in July, versus 38.4 percent in June.

Corporate loans fell to 650.1 billion yuan in July from 981.9 billion yuan a month earlier.

Chinese banks usually make few loans in July after traditionally ramping up lending in June.

Broad M2 money supply grew 8.5 percent in July from a year earlier - the highest in five months, data from the People's Bank of China showed on Monday, beating forecasts for an expansion of 8.2 percent and compared with a record low of 8.0 percent in June.

Outstanding yuan loans grew 13.2 percent from a year earlier, faster than an expected 12.8 percent rise and compared with an increase of 12.7 percent in June.

China's total social financing (TSF), a broad measure of credit and liquidity in the economy, dropped to 1.04 trillion yuan in July from 1.18 trillion yuan in June, data from the central bank showed on Monday.

TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.

That can provide hints of activity in China's vast and unregulated shadow banking sector, which authorities have also been targeting in their campaign to reduce systemic risks.

Combined trust loans, entrusted loans and undiscounted bankers' acceptances, which are common forms of shadow banking finance, shrank by 1.26 trillion yuan in the first six months.

(Reporting by Kevin Yao and Cheng Fang; Editing by Richard Borsuk)