The People’s Bank of China on Thursday kept its one-year loan prime rate steady for a second straight month at 3.65%. The over-five-year LPR, which serves as a benchmark for mortgage rates, was also unchanged at 4.3%.
A weak yuan stands in the way of further cuts. The Chinese currency reached over 7.27 to the dollar on the offshore market at one point Thursday, its weakest point since tracking began in 2010, as investors abroad dump the yuan for the greenback.
Meanwhile, new lending to corporations has soared. Medium to long-term loans used for capital investment increased 94% on the year in September, the sharpest jump since February 2021.
The trend is driven largely by the state-backed China Development Bank, the Export-Import Bank of China and the Agricultural Development Bank of China, which have contributed a combined 670 billion yuan (US$92.8 billion) to an infrastructure investment fund since July. The Chinese government sees regional infrastructure investment as the main driver to economic recovery.
The banks also lined up 200 billion yuan in financing to help cash-strapped developers complete condominium projects. Many homebuyers began boycotting mortgage payments for delayed units this summer, which the government worries could trigger a wider financial crisis.
These efforts have bolstered lending to fields the government considers a priority. Still, strict restrictions under China’s zero-Covid policy cast a shadow over the economy, and overall demand for financing remains low.
The index representing lending demand among businesses and households logged its steepest drop in the April-June quarter in a PBOC survey of about 3,200 banks. Total lending marked its lowest point in over five and a half years. The figures were slow to recover in July-September as well.
Retail lending in particular has been trending down since May 2021. New medium to long-term loans to individuals, the majority of which are mortgages, fell 26% on the year in September.
At the end of September, the PBOC scrapped the floor on mortgage rates in certain cities where condo sales have suffered. It also lowered interest rates for loans from a government housing fund. But new condominium sales dropped around 40% on the year by area during this month’s National Day holidays, typically one of the busiest times for the housing market.
In many countries, increased corporate lending indicates an economic boom. But the opposite is true for China, where state-owned banks ramp up lending to state-owned companies as part of the government’s efforts to shore up the economy. Trends in retail loans will likely provide a clearer picture on where China’s economy is headed.