New loans, the widest measure of credit in the Chinese economy fell more than predicted in October, implying that the Beijing authorities are having some success in tamping down the excesses of the shadow-finance sector.
Yuan loans dropped to 506.1 billion, the smallest volume in ten months and a 36% decline from September's 787.0 billion, according to the National Bureau of Statistics. Economists in the Bloomberg survey had expected 580 billion.
Total or aggregate financing was 856.4 billion yuan, far less than the 1,404.9 billion in September and second lowest total in in two years. Analysts had forecast 1,115.0 billion yuan.
The broadest measure of the money supply tracked by the Peoples Bank of China (PBOC), M2, the total amount of money in circulation, rose 14.3 percent from a year earlier, 0.1 percent more than the previous month. .
Credit expansion, usually in the form of local currency loans, has been the government’s favored method of promoting economic growth. Many of the loans originate outside the banks in the so-called shadow finance sector.
Of October’s total loans, banks extended 59 percent and trust loans, one of the types from the shadow sector, were only 40.4 billion yuan, 5.7 percent, the lowest amount since July 2012.
A large portion of new lending has gone into construction projects, residential, commercial and manufacturing, and there have been many questions about the economic viability of some of the projects.
There have also been signals that the government wants to limit new debt. Premier Li Keqiang has said that “there is a lot of money in the pool and issuing more money may lead to inflation." The PBOC said in a report that the economy "may see a decline in leverage” over a long period.
Chinese leaders have been trying to find a new formula for growth in the face of reduced external demand for her manufactured exports while maintaining fast paced economic expansion.
The Chinese government has recently engineered temporary liquidity shortages in the repurchase market, taken as a blunt sign to the country's financial sector that it is serious about curbing loan growth and redirecting economic expansion.
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