China’s central bank and financial regulators met with bank executives and told lenders to boost loans to support a recovery, adding to signs of heightened concern from policymakers about the deteriorating economic outlook.
Officials from China Life Insurance Co (中國人壽) and stock exchanges were also at the meeting on Friday, where authorities discussed measures with the financial sector in preventing and reducing local government debt risks, according to a statement from the People’s Bank of China (PBOC) yesterday.
The PBOC last week unexpectedly reduced a key interest rate by the most since 2020 to bolster an economy that is facing fresh risks from a worsening property slump and weak consumer spending. The surprise move came shortly before the release of disappointing economic activity data for last month showing growth in consumer spending, industrial output and investment sliding across the board and unemployment picking up.
Photo: Reuters
Major financial institutions, especially big state-owned banks, must increase loan disbursements and avoid big fluctuations in lending, according to the statement. Chinese banks extended the smallest amount of monthly loans since 2009 last month, a further sign of weak demand in the economy that raises the risk of prolonged deflation pressure.
Regulators and financial institutions must coordinate in reducing risks associated with local government debt and strengthen such monitoring, the central bank said.
China must firmly avoid systemic risks, according to the statement. The central bank reiterated authorities would optimize home mortgage policies, without providing details.
Officials have signaled concern about the real estate market, where another major property developer, Country Garden Holdings Co (碧桂園), faces a debt crisis and home sales continue to decline. Risks are also spreading to the financial sector, where Zhongzhi Enterprise Group Co (中植企業), which had exposure to the real-estate sector, missed payments on some investment products.
Meanwhile, China is expected to cut its prime lending rates today following last week’s surprise decision by the PBOC to trim borrowing costs on its medium-term lending facility. Lower interest rates might help Beijing support its economy, but doubts remain about their potential effectiveness without the use of wider stimulus measures.
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