cross-posted from: https://beehaw.org/post/18029055
- Chinese commercial banks have flocked to buying government bonds as Beijing's stimulus push has failed to spur consumers loan demand.
- Total new yuan loans in the 11 months through to November 2024 fell over 20% to 17.1 trillion yuan ($2.33 trillion) from a year ago, according to data released by the People's Bank of China.
- Chinese sovereign bonds have seen a strong rally since December, with yields plunging to all-time lows this month.
With consumers and businesses gloomy about the prospects of the world's second-largest economy, loan growth has stalled. Beijing's stimulus push has so far not been able to spur consumer credit demand, and is yet to spark any meaningful rebound in the faltering economy.
So what do banks do with their cash? Buy government bonds.
Chinese sovereign bonds have seen a strong rally since December, with 10-year yields plunging to all-time lows this month, dropping by about 34 basis points, according to LSEG data.
"The lack of strong consumer and business loan demand has led the capital flows into the sovereign bonds market," said Edmund Goh, investment director of fixed income at abrdn in Singapore.
That said, "the biggest problem onshore is a lack of assets to invest," he added, as "there are no signs that China can get out of deflation at the moment."
[...]
"There is still a lack of quality borrowing demand as private enterprises remain cautious with approving new investments and households are also tightening purse strings," said Lynn Song, chief economist at ING.
[...]
The slowdown in loans comes as mortgages, which used to fuel credit demand, are still in the stage of bottoming, said Andy Maynard, managing director and head of equities at China Renaissance.
Chinese onshore investors have to contend with a lack of "investable asset to put money in, both in financial market and in physical market," he added.
[...]
Zong Ke [portfolio manager at Shanghai-based asset manager Wequant] said the current policy interventions are merely "efforts to prevent economic collapse and cushion against external shocks" and "simply to avoid a freefall."
[...]