Accelerating Chinese loan growth stokes concerns about debt challenges

According to data from the People’s Bank of China, China’s new loan growth surged 29 percent on month in September. China’s banks extended 1.22 trillion yuan (US$181 billion) in net new yuan loans in September, compared to 948.7 billion yuan in August.

The broader M2 money supply grew 11.5 percent from a year earlier, in line with forecasts and compared to 11.4 percent in August. Analysts polled by Reuters had expected new lending of 1 trillion yuan and M2 money supply gaining 11.6 percent.

Mortgage loans were the main driver, which were approximately 55 percent above the average monthly pace during the first six months of 2016. Data showed that PBOC’s loose money policy has had a significant influence on driving real estate sales.

M1 money supply, the narrower measure which tracks only currency in circulation and corporate demand deposits, continued to expand at an elevated pace, gaining 24.7 percent in September on year. It grew 25.3 percent on year in August.

Outstanding yuan loans grew 13 percent by end-September on an annual basis. Outstanding loans had been forecast to rise 12.9 percent. China's debt has soared to 250 percent of GDP and the Bank for International Settlements (BIS) warned in September that a banking crisis was looming in the next three years. Accelerating Chinese loan growth may be a sign of an improving economy, but on the other hand stokes concerns about debt challenges.

"Credit booms, even stealth mini ones, have a stair-step effect on the credit-to-GDP ratio, which at 250 percent China can ill afford," Tim Condon, ING's chief Asia economist, wrote in a recent note.