China's bank loans unexpectedly contract for first time in 20 years
China's new yuan loans contracted in July for the first time in 20 years as the economy struggled, falling well short of analysts' forecasts, but improvements in broader credit growth suggest the central bank is in no rush to ease policy.
While new loans typically fall in July after strong gains in June when banks strive to meet quarterly targets, the latest reading was well below even the most pessimistic analyst's forecasts, pointing to weak private sector demand as Beijing tries to negotiate a durable trade deal with Washington. 'The July credit data was weak, but money supply exceeded expectations, reflecting the impact of last year's low base and debt resolution efforts,' said Xing Zhaopeng, senior China strategist at ANZ.
'At present, monetary policy has entered a period of observation, and a rate cut is unlikely in the short term. From the perspective of liquidity needs, a reserve requirement ratio (RRR) cut could also be delayed. Structural monetary policy remains the main tool for easing.' New yuan loans contracted by 50 billion yuan ($6.97 billion) in July, falling well short of analysts' forecasts and plunging from 2.24 trillion yuan in June, according to Reuters calculations based on data released by the People's Bank of China. That marked the first contraction since July 2005 and the largest monthly decline since December 1999, according to central bank data.
Analysts polled by Reuters had expected new yuan loans last month to reach 300 billion yuan, compared with 260 billion yuan a year ago.
Along with seasonal trends which buoyed June's tally, credit demand also had rebounded sharply that month as sentiment improved following rounds of trade talks in Europe and a tentative easing of trade tensions with the US. The central bank does not provide monthly breakdowns. Reuters calculated the July figures based on the PBOC's January-July data released on Wednesday, compared with the January-June figure.
In the first seven months of the year, banks extended 12.87 trillion yuan in new loans, versus 12.92 trillion yuan in January-June, implying a net reduction of 50 billion yuan in July. Banks issued 13.53 trillion yuan in new loans in the same period last year.
Household loans contracted 489.3 billion yuan in July, versus a rise of 597.6 billion yuan in June, according to Reuters calculations, as a prolonged property market crisis showed no signs of easing. Corporate loans plunged to 60 billion yuan from 1.77 trillion yuan in June. The PBOC release did not give any explanations for changes in credit trends.
China's economy slowed less than expected in the second quarter due in part to policy support and as factories took advantage of a US-China trade truce to front-load shipments. But analysts warn the second half will be tougher as weak domestic demand, the property slump and rising global trade risks ramp up pressure on Beijing.
The United States and China agreed early this week to extended their tariff truce for another 90 days, staving off triple-digit duties on each other's goods, but business confidence remains fragile, with some factories cutting selling prices, shifts and workers' pay.
On Tuesday, China announced it would offer interest rate subsidies for businesses in eight consumer service sectors, as well as for individual consumers. Eligible businesses and consumers can receive an annual interest subsidy of one percentage point on loans. Beijing has ramped up infrastructure spending and consumer subsidies, alongside steady monetary easing.
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Al Jazeera
3 hours ago
- Al Jazeera
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China claims almost all of the South China Sea, a vast area spanning approximately 3.6 million square kilometres (1.38 million square miles) that is rich in hydrocarbons and one of the world's major shipping routes. Vietnam, the Philippines, Taiwan, Malaysia and Brunei are claimants to various parts of the sea. Ralph Cossa, chairman of the Honolulu-based Pacific Forum research institute, said 'the challenge to freedom of navigation is a global one'. But the challenges posed are particularly worrying when it comes to the rival superpowers China and the US. 'I don't think anyone wants a direct conflict or is looking to start a fight,' Cossa said. 'But I worry that Chinese assertiveness could result in an accident that it would prove difficult for either side to walk away or back down from,' Cossa said. Speaking on the sidelines of the Institute of Strategic and International Studies' Asia Pacific Roundtable 2025 summit in Kuala Lumpur earlier this year, Do Thanh Hai, deputy director-general at Vietnam's East Sea Institute Diplomatic Academy, said no one will emerge unscathed from an incident in the disputed region. 'Any disruption in the South China Sea will affect all,' he told Al Jazeera.
Al Jazeera
5 hours ago
- Al Jazeera
China navy power on show in Pacific, signals ability to ‘contest' US access
Kuala Lumpur, Malaysia – When four Chinese vessels joined with Russian ships earlier this month in joint naval drills in the Sea of Japan, few eyebrows were raised. Moscow and Beijing have been reinforcing their military partnership in recent years as they seek to counterbalance what they see as the United States-led global order. But what did raise eyebrows among defence analysts and regional governments had occurred several weeks earlier when China sent its aircraft carriers into the Pacific together for the first time. Maritime expert and former United States Air Force Colonel Ray Powell described the 'simultaneous deployment' of China's two aircraft carriers east of the Philippines as a 'historic' moment as the country races to realise Chinese President Xi Jinping's ambition of having a world-class navy by 2035. 'No nation except the US has operated dual carrier groups at such distances since [World War II],' said Powell, director of SeaLight, a maritime transparency project of the Gordian Knot Center at Stanford University. 'While it will take years for China's still-nascent carrier capabilities to approach that of America's, this wasn't just a training exercise – it was China demonstrating it can now contest and even deny US access to crucial sea lanes,' Powell told Al Jazeera. China's state-run news agency Xinhua described the exercise by the aircraft carriers as a 'far-sea combat-oriented training', and the state-affiliated Global Times reported that China was soon poised to enter the 'three-aircraft-carrier era', when its Fujian carrier enters service later this year. East Asia is a 'home game' for China China currently has two operational aircraft carriers – the Liaoning and Shandong – and the Fujian is undergoing sea trials. While the Chinese navy operates the world's largest naval fleet with more than 370 ships compared with the US's 251 active ships in commission, Beijing still lacks the global logistics network and advanced nuclear submarine technology required of a truly mature blue water force, Powell said. Beijing's three aircraft carriers run on diesel compared with Washington's 11 carriers, all of which are nuclear powered. But 'gaps' in naval capabilities are closing between the US and China. '[China] fully intends to close these gaps and is applying tremendous resources toward that end, and with its rapidly improving technical prowess and vastly superior shipbuilding capacity, it has demonstrated its potential to get there,' Powell said. Beijing's more immediate focus is not directed towards competing with the US globally, Powell added. Rather, China is focused on changing the balance of power and convincing its allies and adversaries to accept China's dominance within its chosen sphere of influence in East Asia. The second option, if ever necessary, is to defeat them. 'East Asia is a 'home game' for China – a place where it can augment its small carrier force through its far larger land-based air and rocket forces – including so-called [aircraft] 'carrier killer' missile systems that can strike targets up to 4,000km [2,485 miles] away,' Powell said. Regionally, while the Philippines engages in increasingly frequent high seas confrontations with the Chinese coastguard, it is Japan that is watching China's naval build-up with concern, experts said. Japan's Defence Minister Gen Nakatani said in June – after confirming that China's two carriers had operated simultaneously in the Pacific for the first time – that Beijing apparently aims 'to advance its operational capability of the distant sea and airspace'. With the US increasingly perceived as becoming more inward-looking under President Donald Trump, Japan is considered a growing force in the contested maritime terrain in the Asia Pacific region amid what Tokyo has called 'the most severe and complex security environment since the end of World War II'. 'Preparation for a more uncertain future' Even before Trump's second stint as US president, Japan had embarked on the most pivotal shift in post-World War II military spending. Tokyo's defence spending and related costs are expected to total 9.9 trillion yen (about $67bn) for fiscal year 2025, equivalent to 1.8 percent of Japan's gross domestic product (GDP), and the government has committed to raising spending on defence to 2 percent of GDP by 2027, according to Japanese media reports. '[Japan's] naval capacity is growing steadily, not just in support of the US alliance but in quiet preparation for a more uncertain future – perhaps even one in which America withdraws from the Pacific,' said Mike Burke, lecturer at Tokyo-based Meiji University. Collin Koh, senior fellow at the Singapore-based Institute of Defence and Strategic Studies (IDSS), also said that China's growing military might, assertiveness and proclivity to resort to coercive behaviour have 'aggravated Japan's threat perception'. But Japan alone cannot guarantee security in such a regional hotspot as the South China Sea, said Burke. Instead, Tokyo's goal is to check Beijing's growing power through a Japanese presence and building partnerships with other regional players. This year alone so far, Japan has deployed two naval fleets to 'realise' what Japanese officials describe as a free and open Asia Pacific region. The first fleet was deployed from January 4 to May 10 and docked in 12 countries, including Malaysia, Singapore, the Philippines, Saudi Arabia, Bahrain and Oman. The second was deployed on April 21 and is ongoing until November, with port calls in some 23 countries, as well as roles in multilateral military exercises. Japan aims to build trust with other allies, Burke said, noting that Japan has worked on its soft power by funding radar systems, investing in civil infrastructure from ports to rail networks in Southeast Asia, and supporting maritime domain awareness initiatives in the region. Noriyuki Shikata, Japan's ambassador to Malaysia, described Tokyo's approach as a strength at home and reinforcing collaboration abroad with 'like-minded countries and others with whom Japan cooperates', in order to uphold and realise a free and open international order. 'Japan has been strengthening its defence capabilities to the point at which Japan can take the primary responsibility for dealing with invasions against Japan, and disrupt and defeat such threats while obtaining the support of its [US] ally and other security partners,' the ambassador told Al Jazeera. Zachary Abuza, professor of Southeast Asia studies and security at Washington, DC-based National War College, said the Japan Maritime Self-Defence Force (JMSDF) is a world-class navy that is focused on building the highest level of capabilities. Abuza also described Japan's submarine force as 'exceptional', while it is also building up its capabilities, including more high-end antiship missiles. 'All of these developments should give the Chinese some pause,' Abuza told Al Jazeera in a recent interview. 'That said, they [the Japanese] are nervous about Trump's commitment to treaty obligations, and you can see the Japan Self-Defence Force is trying to strengthen its strategic autonomy,' he said. 'Chinese assertiveness could result in an accident' Geng Shuang, charge d'affaires of China's permanent mission to the United Nations, said earlier this year that China was committed to working with the 'countries concerned' to address conflicting claims in the South China Sea through peaceful dialogue. He also lambasted the threat posed by the US navy's freedom of navigation operations in the contested sea. 'The United States, under the banner of freedom of navigation, has frequently sent its military vessels to the South China Sea to flex its muscles and openly stir up confrontation between regional countries,' Geng was quoted as saying by Xinhua. China claims almost all of the South China Sea, a vast area spanning approximately 3.6 million square kilometres (1.38 million square miles) that is rich in hydrocarbons and one of the world's major shipping routes. Vietnam, the Philippines, Taiwan, Malaysia and Brunei are claimants to various parts of the sea. Ralph Cossa, chairman of the Honolulu-based Pacific Forum research institute, said 'the challenge to freedom of navigation is a global one'. But the challenges posed are particularly worrying when it comes to the rival superpowers China and the US. 'I don't think anyone wants a direct conflict or is looking to start a fight,' Cossa said. 'But I worry that Chinese assertiveness could result in an accident that it would prove difficult for either side to walk away or back down from,' Cossa said. Speaking on the sidelines of the Institute of Strategic and International Studies' Asia Pacific Roundtable 2025 summit in Kuala Lumpur earlier this year, Do Thanh Hai, deputy director-general at Vietnam's East Sea Institute Diplomatic Academy, said no one will emerge unscathed from an incident in the disputed region. 'Any disruption in the South China Sea will affect all,' he told Al Jazeera.
Qatar Tribune
a day ago
- Qatar Tribune
China targets 2 EU banks in response to new sanctions
Agencies China announced countermeasures on Wednesday and imposed sanctions on two banks in the European Union, in retaliation for the bloc including two Chinese financial institutions in its latest round of sanctions against Russia. Effective immediately, Lithuanian banks UAB Urbo Bankas and AB Mano Bankas are banned from carrying out transactions and cooperation with organizations and individuals within China, according to a statement from the Ministry of Commerce. 'We hope that the EU will cherish the long-term good cooperative relations formed between China and the EU and its member states in the fields of economy, trade and finance,' the ministry said in a separate statement. It also called on the EU to 'correct wrongdoings' and stop harming China's interests and undermining China-EU cooperation. The EU's sanctions against Heihe Rural Commercial Bank and Heilongjiang Suifenhe Rural Commercial Bank were implemented from Aug. 9, its document showed. China has previously said the EU's accusations against the two banks were 'groundless.' The EU's move to add Chinese firms to its Russia sanctions package in July has become a point of contention as ties between the bloc and the world's second-largest economy remain rocky. European Commission President Ursula von der Leyen said trade ties have hit a 'clear inflection point' after a summit with top Chinese leaders in Beijing last month. Discussions highlighted concerns on commerce, but the EU had also pressed China to discourage Russia in its war against Ukraine during the meeting.
