Chart of the Week: China policymakers struggling to boost mortgage borrowing

New aggregate financing to the real economy in China improved in August after July’s particularly weak reading, although August’s total was still almost 20% lower than in the same month last year, resulting in a second consecutive monthly decline in the twelve-month rolling sum. The key driver of weakness compared with last August was lower government bond issuance; this reflected the front loading of local government special bonds in the first half of the year, amid attempts to support the economy with increased infrastructure spending. New renminbi bank loans showed timid signs of a rebound as they rose by around 5% from August 2021, but there was quite a striking divergence in the categories, with weakness in medium-term to long-term loans — a proxy for mortgage lending — particularly noteworthy. Elsewhere, there was strength in some of the off-balance-sheet lending categories, amid increases in banker’s acceptance bills and entrusted loans.

The authorities enacted further policy easing during August, with the 1-Year Loan Prime Rate cut by 5 basis points, and the 5-Year Loan Prime Rate, off which mortgages are priced, cut by 15 basis points. But with the significant downturn in housing and ongoing zero-COVID policy, policymakers may struggle to engineer a significant pick up in bank lending growth anytime soon, particularly given the lack of demand for borrowing amongst beleaguered households.

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