China’s monetary stimulus last year did little to boost loan demand in the second quarter — even though corporate borrowing costs were lower than a year ago, according to the China Beige Book survey released Friday.
It suggests rate cuts by the People’s Bank of China in August may have had a limited effect on boosting growth, and casts doubt on whether the latest round of rate cuts in mid-June will be effective.
“For months analysts have been pumping out the idea that Beijing has little choice but large-scale monetary easing,” said Leland Miller, CEO of China Beige Book. “The PBoC started pushing a few months ago, and the string wasn’t moving.”
As the report pointed out, “We already have monetary stimulus, but it’s just not working.”
Weaker-than-expected economic growth in April and May has reinforced calls for bolder monetary measures to support growth in the world’s second-largest economy as a long-awaited post-Covid recovery disappointed.
Major Wall Street banks – from Goldman Sachs and Bank of America to UBS and Nomura – have recently cut their growth forecasts for China.
China Beige Book found in its latest quarterly survey that national borrowing in the world’s second-largest economy has fallen to its lowest level since it began collecting data in 2010.
It also found that pent-up demand for loans was even weaker than last year.
China Beige Book has been indicating for months that the real estate sector in China is getting easier credit conditions, but real estate agents reported month-over-month and year-over-year declines in sales and prices.
Bright spots in China’s recovery
Still, the US company expects growth in China to be stronger in the second quarter than in the first, as data showed that the manufacturing, retail and services sectors reported quarter-over-quarter sales acceleration. The optimism was echoed earlier this week by Chinese Premier Li Qiang.
China Beige Book’s survey involved 4,604 respondents in China across two time periods: mid-April and mid-May to mid-June.
The report provides a first look at the state of China’s economy ahead of a series of official government data tentatively scheduled for mid-July.
“Markets have traded hopes of a consumption-driven recovery for a stimulus-driven recovery, but June data shows that consumer spending is still rising,” said Shehzad Qazi, general manager of China Beige Book.
“Retail revenues have accelerated, spending on travel and hotels is far from declining, and manufacturing revenues have improved for a third consecutive month,” he added.
“China’s 2023 recovery is not sharp, but it’s not over either.”
With the greater prosperity of the population and more meaningful purchasing power, China’s economic recovery is largely driven by the first-class cities, said China Beige Book.
Even then, there are challenges that survey participants identified: low prices as they work to maintain global market share in a global economic downturn.
This has undoubtedly been exacerbated by a weakening Chinese Yuanwhich hit an eight-month low against the US dollar this week.
Market expectations for an economic recovery may have been overly optimistic, just as current market pessimism about China may have been exaggerated, China Beige Book said.
“China’s Q2 story is one in which one mistake breeds another,” said China Beige Book chief economist Derek Scissors.
“If you think the economy is terrible when it isn’t, you can expect big stimulus when it isn’t,” he added.
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