The disappointing economic backdrop to China’s policy dilemma

The headquarters of the People’s Bank of China (PBOC), the central bank, is pictured in Beijing, China on September 28, 2018. REUTERS/Jason Lee

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Aug 16 (Reuters) – China’s central bank cut interest rates for the second time this year on Monday, but analysts doubt it will do much to boost lending in an economy flush with cash but lacking in consumer demand and business confidence. Read on

The People’s Bank of China (PBOC) cut rates on its one-year and 7-day lending facilities by 10 basis points as a string of July data painted a more gloomy economic picture than before.

China’s debt spending cuts

House prices fell. Property investment also sank and new construction weakened.

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House prices in China fell

China’s retail sales rose 2.7% in July, compared with 3.1% in June, pointing to a slowdown in consumer spending.

China Retail

Industrial production also missed expectations. Fresh Covid-19 concerns, job concerns and the property crisis have hampered borrowing by companies and consumers.

Chinese banks raised 679 billion yuan ($101 billion) in new yuan loans in July, less than a quarter of June’s amount, according to data released by the PBOC last week. Read on

China’s Social Finance

Much of China’s recent economic and fiscal stimulus has flowed into savings. Chinese households added 10.3 trillion yuan to deposits in the first half of 2022.

China’s bank deposits

Total net assets of Chinese mutual funds rose to a record $1.58 trillion at the end of June, up 6.7% from the start of the year, according to Refinitiv Lipper.

Reuters graphics

In the stock market, outstanding margin loans hit a four-month high of 1.64 trillion yuan, while equity mutual funds attracted $7 billion in the past two months.

China margin lending
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Reported by Patturaja Murugabupathy; Additional reporting by Gaurav Dogra in Bangalore; Edited by Vidya Ranganathan and Edwina Gibbs

Our Standards: Principles of Thomson Reuters Trust.

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