China’s New Bank Loans Disappoint, Deflationary Pressures Continue in Economy

Summary

  • In December, Chinese banks increased new yuan loan allotment to 1.17 trillion yuan, falling behind predictions despite being up from November, data from People’s Bank of China revealed.
  • The total bank lending for the year reached a record 22.75 trillion yuan, an equivalent of UK’s gross domestic product.
  • However, the nation’s economy continues to face challenges with disappointing post-COVID recovery, plagued with deflationary pressures predicted to persist into 2024.
  • Next week’s release of December’s data – including industrial output, investment, retail sales, and fourth-quarter GDP – is anticipated to give clarity on China’s economic momentum heading into 2024.
  • It is widely expected that the People’s Bank of China will introduce new easing measures to support the economy and address ongoing deflationary pressures.

Chinese Banks Loan Allotment Rise

New yuan loans made by Chinese banks in December totaled 1.17 trillion yuan ($163.31 billion), according to data from People’s Bank of China which was revealed on Friday. An increase from November, but still underperforming analysts’ predictions.

Record Breaking Yearly Lending

The yearly new bank lending achieved a new record high at 22.75 trillion yuan, comparable to the gross domestic product of the United Kingdom and an increase of 6.8% from 21.31 trillion yuan in 2022, the previous record.

Economic Struggles Persist

Despite the record lending, China’s economy, the second largest globally, has faced stumbling blocks in regaining its momentum. Post-COVID recovery has been underwhelming. Deflated consumer and business confidence, local governments combating enormous debts, and an extended property crisis straining construction and investment sectors are major concerns.

Economic Outlook and Projections

In 2023, China’s economic growth is forecasted to meet the official target of approximately 5% and the People’s Bank of China is predicted to implement fresh easing steps to bolster the economy, amid the overhanging questions of deflationary pressures and duration of the housing downturn.

Impending Central Bank Decisions

The central bank plans to increase liquidity injections and possibly lower a critical interest rate during its upcoming roll over of maturing medium-term policy loans. This measure will be an attempt to stabilize the wavering economy. However, with credit flowing more into productivity than consumption, deflationary pressures could escalate, dampening the impact of these monetary policy tools.

Impact on Forex and Trading

The fiscal decisions made by the People’s Bank of China could profoundly influence forex and trading markets. Possibilities include changes in the value of assets and shifts in investment strategies, specifically concerning yuan-denominated assets.

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