China’s credit growth on gradual downward spiral

China’s credit and bank lending growth is likely to be on a gradual downward trend. China’s top policymakers have not made any major changes to their tone. Managing credit risks continue to be a top priority. According to a Societe Generale research report, bank loans are expected to have registered a rise of RMB 600 billion, as compared with the rise of RMB 590 billion in July 2015. The local government debt-to-bond swap amount is likely to be around RMB 250 billion.

“The implied growth of outstanding bank loans will likely slow modestly to 16.8 percent yoy in July from 17.2 percent yoy in June”, added Societe Generale.

In the meantime, the deleveraging in the shadow banking sector continued. Net corporate bond issuance is expected to have remained at a similar rate as in June at RMB 200 billion. Therefore, credit growth is likely to have eased for the third consecutive month to 15 percent year-on-year in July from its cyclical peak of 16.1 percent year-on-year in April.