JPMorgan reports China's household and corporate loans each saw their largest single-month contraction on record, signaling a severe lack of borrowing demand.
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China's April Credit Shrinks by 10B Yuan in Record Contraction
JPMorgan reports China's household and corporate loans each saw their largest single-month contraction on record, signaling a severe lack of borrowing demand.
China’s credit expansion in April slowed far more than forecast, with new yuan loans unexpectedly falling by 10 billion yuan against expectations for a 300 billion yuan gain, a historic contraction that points to deeply anemic demand from both households and businesses.
"The single-month contraction in both household loans and corporate loans was the largest on record," JPMorgan said in a research report, noting the magnitude of the weakness exceeded expectations despite seasonal factors.
Aggregate financing, a broad measure of credit, was just 620 billion yuan, roughly half the consensus forecast of 1.25 trillion yuan. The data showed a record 870 billion yuan monthly drop in corporate loans and a 787 billion yuan contraction in household loans, a proxy for mortgages and consumer credit.
The record-low credit figures intensify pressure on the People's Bank of China for more aggressive monetary easing to combat the sharp economic downturn. JPMorgan advised a defensive portfolio shift, favoring China's Big Four state-owned banks, which are seen as having stronger loan pipelines in a deteriorating environment.
The breakdown of the data from the PBoC revealed a concerning lack of organic credit creation. To fill the lending gap, banks turned to bill financing, which increased by 1.24 trillion yuan. JPMorgan's report views this as a negative signal for blended loan yields and banks' net interest margins (NIM), as bill financing is a low-margin activity often used to meet lending quotas when real demand is absent.
Further reinforcing the weak demand signals, the gap between the M1 and M2 money supply growth rates widened to a negative 3.6 percent. This indicates that transactional money demand is significantly weaker than the demand for precautionary savings, a classic sign of subdued economic activity and low confidence.
The report highlighted that the deterioration in retail loan demand was particularly surprising, with both short-term consumer credit and medium- to long-term mortgages recording monthly contractions. This occurred even as property transaction volumes in major cities showed some signs of stabilizing, suggesting the recovery in the crucial real estate sector remains fragile at best.
This article is for informational purposes only and does not constitute investment advice.
[1] JPM: China Apr Credit Data Far Below Expectations, Favor Big Four State-owned Banks for Defensive Positioning[2] China April new loans unexpectedly shrink as weak demand weighs[3] China Credit Growth Misses Expectations as New Loans Shrink[4] China's credit growth slips below estimates[5] JPMorgan pulls no punches on Strait of Hormuz, oil prices
