Chinese Households Avoiding Loans... Further Reserve Requirement Ratio Cut Expected

Domestic Economy Underperforms Expectations
Household Short-Term Loans See Largest Decline Since 2007

As the pace of new loan growth in China has sharply slowed, the central bank is expected to take measures such as lowering the reserve requirement ratio (RRR) within the year to inject additional liquidity.

On the 13th, the People's Bank of China, the country's central bank, announced that new yuan loans in October amounted to 738.4 billion yuan (approximately 133.8793 trillion KRW). Although this slightly exceeded market expectations (665 billion yuan), it represented a 68.03% plunge compared to the previous month (September, 2.31 trillion yuan). Compared to the same period last year, it increased by 10.9%, but this growth rate is the lowest since April last year.

[Image source=Yonhap News]

Among the new loans, household loans decreased by a total of 34.6 billion yuan compared to the previous month. Of these, short-term loans fell by 105.3 billion yuan, marking the largest decline since 2007 as of October. Medium- to long-term loans, mainly used for mortgage loans, increased by 70.7 billion yuan. Loans to businesses increased by 516.3 billion yuan, with short-term and medium- to long-term loan increases recorded at 177 billion yuan and 382.8 billion yuan, respectively.

The social financing scale, a credit indicator, recorded 1.85 trillion yuan, slightly below experts' expectations (1.95 trillion yuan). However, compared to the same period last year, it increased by 910.8 billion yuan.

Considering this trend, the market expects the People's Bank of China to further lower the reserve requirement ratio (RRR) within this year. Zhang Xu, chief bond analyst at China Guangda Securities, said, "The RRR will need to be further reduced by the end of the year," adding, "This will reduce financial institutions' capital costs, expand interest margins, and enhance the sustainability of financial support for the real economy." He also explained, "Lowering the RRR can provide a suitable liquidity environment for local government bond issuance," and "The capital market will enter the eve of the new year, and if the RRR is lowered at an appropriate time, it will also help stabilize the financial market operations."

Mingming, chief economist at CITIC Securities, told Bloomberg News, "Credit demand remains weak," and added, "There is still room to adjust monetary policy with the goal of lowering borrowing costs for the real economy and supporting domestic demand." Duncan Reilly, chief China economist at Pantheon Macroeconomics, said, "The sluggish household loan performance signals continued weak housing sales following the debt issues of Chinese developers," referring to the Evergrande and Biguiyuan incidents.

In fact, China's domestic economy has not rebounded as quickly as expected. Related industries such as Alibaba and JD.com have not disclosed sales figures from the recent large-scale shopping festival, Singles' Day, leading to interpretations that their performance fell short of expectations. According to estimates by market research firm Xintudata, total sales on comprehensive e-commerce platforms such as Tmall, JD.com, and Pinduoduo from 8 PM on the 10th to midnight on the 11th of this month amounted to 277.6 billion yuan, a 9.75% decrease compared to the previous year. Earlier, the October Consumer Price Index (CPI) fell by 0.2%, indicating a trend of weakening demand.

Meanwhile, the People's Bank of China has also continuously indicated a dovish monetary policy stance. Governor Pan Gongsheng recently stated at the annual forum of the financial sector, "To support economic recovery, we will further reduce financing costs and maintain sufficient liquidity."

This content was produced with the assistance of AI translation services.