Chinese authorities are in a challenging situation as companies and households shy away from borrowing amid Covid outbreaks and lockdowns continue to crush confidence.
April saw weakened loan growth marking the worst in almost five years, several indicators suggest the data for May won’t be much better.
Housing sales have continued to slump, indicating a lack of appetite for mortgages and subdued credit demand among real estate firms. Struggling to find enough clients, banks have been swapping bills with each other just so they can meet regulatory requirements for corporate lending.
The reluctance to borrow is largely due to uncertainty over China’s Covid curbs, and whether future outbreaks could lead to repeated lockdowns like the one that crippled activity in Shanghai for weeks.
Businesses have had to halt production and cut jobs, revenue has slumped and profits have plunged. Many companies are putting expansion plans on hold.
“The sluggish credit demand points to worsening expectations among market entities and slowing business expansion,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd as reported by Bloomberg.
That suggests China’s economic rebound might be weak even in the third quarter, as many investment activities can only start after loans are secured.