China October loan data disappoints

China's credit growth slowed sharply in October, despite pressure by regulators on banks to help keep cash-starved companies afloat, pointing to further weakening in the economy in coming months.

While October is typically a slow month for Chinese credit, growth in key gauges such as total social financing and money supply fell to record lows, reinforcing views that policymakers will need to step up efforts to revive flagging investment.

The weaker trend also suggested overall credit conditions in China tightened last month despite recent easing in monetary policy, including moves by the central bank to bring down market interest rates and four cuts in banks' reserve requirements so far this year.

“October credit data is weaker than expected,” said Luo Yunfeng, an analyst at Merchants Securities in Beijing.

However, Luo believes the room for further policy easing is limited as Beijing remains concerned about controlling debt and financial risks, which were fuelled by past spending binges.

Chinese banks extended 697 billion yuan ($100.23 billion) in net new yuan loans in October, central bank data showed on Tuesday, much less than expected.

Analysts polled by Reuters had predicted new loans of 862 billion yuan in October, down from 1.38 trillion yuan in September but well ahead of seasonal norms as lenders began to heed regulators' calls to support smaller firms hit by the economic slowdown, especially those in the private sector.

However, Chinese banks are wary of a fresh spike in bad loans after years of pressure from regulators to reduce riskier lending. Chinese bank shares tumbled on Friday on fears they will be saddled with more non-performing loans.

Corporate loans tumbled to 150.3 billion yuan in October from 677.2 billion yuan a month earlier.

Household loans, mostly mortgages, fell to 563.6 billion yuan from 754.4 billion yuan in September.

Household loans accounted for 80.9 percent of total new loans in October, versus 54.7 percent in the preceding month, according to Reuters' calculations based on central bank data.

In its financial stability report earlier this month, the central bank highlighted the sharp rise in household debt in recent years, noting it needed to be monitored. Analysts have warned the jump could undermine Beijing's efforts to spur consumer spending.

Outstanding short-term consumer loans rose 37.9 on-year in 2017 and the total household debt to GDP ratio was at 49 percent at the end of last year, the central bank said in the report.

Money supply growth was also markedly weak, in further evidence that companies are reluctant to make fresh investments as U.S. tariffs on Chinese goods add to uncertainties about the demand outlook at home.

“With credit growth still cooling, economic activity looks set to come under further pressure in the coming months,” Julian Evans-Pritchard, senior China economist at Capital Economics, said in a note.

“We expect officials to step up policy easing in response, including benchmark lending rate cuts and off-budget fiscal stimulus.”

Most analysts, however, don't expect policymakers to cut benchmark rates any time soon, but could step up tax cuts and infrastructure spending to put a floor under the slowing economy.