Chinese lenders have a massive challenge: they can’t lend enough

Chinese Commercial Banks Have a Hug Problem.

With Consures and Businesses Gloomy About The Prospects of the World’s Second-Larget Economy, Loan Growth has stalled. Beijing’s stimulus push has so far not been alle to spur consumer credit demand, and is what to spark any meaningful rebound in the Faltering Economy.

So what do banks do with their cash? Buy Government Bonds.

Chinese Sovereign Bonds Have Seen a Strong Rally Since DeeCember, with 10-Year Yields Plunging to All-Time Lows this month, Dropping by about 34 Basis Points, According to Lseg Data.

“The Lack of Strong Consumer and Business Loan Demand has LED the Capital Flows into the Sovereign Bonds Market,” said Edmund Goh, Investment Director of Fixed Income at AbRDN In Singapore.

That Said, “The biggest problem onshore is a lacked of assets to invest,” he added, as “there are no signs that china can get out of deflation at the moment.”

Total New Yuan Loans in the 11 months through to November 2024 Fell over 20% to 17.1 trillion yuan ($ 2.33 trillion) from a year ago, According to data released by the people’s bank of chinaIn November, the New bank lending studs at 580 billion yuanVersus 1.09 trillion yuan a year earlier.

Loan Demand has failed to pick up despite a sweping stimulus measures that chinese authorities started unveiling since last September, when the economy verged on Missing Its Full-Yaar Growth Target of “Aur.

Goldman Sachs Sees Growth in the World’s Second-Larges Economy Slowing to 4.5% this year, and expect credit demand in December to have a slowed furdher from nomber.

“There is still a Lack of Quality Borrowing Demand as Private Enterprises Remain Cauutous with Approving New Investments and Househlds are also also also tightening purse strings,” Said Lynn Song, CHIEF EONG, CHIEF EONG, CHIEF EONG

For this year, Authorities have vowed to make boosting consumption a top priority and to revive creedt demand with lower corporate finance and household borrowing costs.

Investors May Continue to Look for “Sources of Risk-Free Yield” This year due to the high level of uncertaini amid potential tariff action from abroad, song said, noting “some Qu future Omestic Policy Support will be. “

The Slowdown in Loans Comes as Mortgages, Which used to Fuel Credit Demand, Are Still in the stage of bottomeing, said andy maynard, managing director and head of rights at China.

Chinese Onshore Investors Have to Conte with a Lack of “Investable Asset to Put Money in, Both in Financial Market and in Physical Market,” He Added.

Official Data Chiursday Showed China’s annual inflation in 2024 study at 0.2%Signaling that Price Barely Grew, While Wholesale Pries Continued to Fall, Down 2.2%.

Institutes are Increasingly Bully Bonds Due to the Belief That Economic Fundamentals will remain weak, coupled with fading hopes for a forceful policy push, said zong khegi Based Asset Manager Wenbo.

Ke said the current policy interventions are merely “Efforts to Prevent Economic Collapse and Cushion Against External Shocks” and “Simply to avoid a free.”

The yield on the US 10-Year Treasury has been rising at a faster pace since june and a spike on wedding on wedding sent the yield to top 4.7%, Neering Levels Last Seen in April,

The widening yield differentials between Chinese and Us Sovereign Bonds Could Risk Encouring Capital Outflows and Put Further Pressure on the Yuan That Has Been Weaking Againbacks.

Chinese onshore yuan hit a 16-month low against the dollar on wedding, while the offshore yuan has been on a Multi-month Slide Since SEPTEMBER.

“You have the perfect story,” said Sam Radwan, Founder of Enhance International, Naming the Lower Government Bond Yields, Prollong Real Estate Crisis and IMPACTS from Rising Tarifs as Risk FOCHING IGN Investors’ Sentiment with Onshore Assets.

While ReduCing The Appeal of China Bonds Among Foreign Investors, The Widened Yield Differentials with Us Treasuries has Little Impact on the Performance of Chinese Govart DS, “said Winson Phoon, Head of Fixed Income Research, Maybank Investment Banking Group.

The falling yields offer a silver lining to beijing – Lower Funding Costs – As Policymakers are Expected to Ramp Up New bond Issuance this year, Said inge’s song.

Beijing Unveiled A $ 1.4 Trillion Debt Swap Program in November, AIMED at Easing Local Government Financing Crisis.

“For Much of 2024, Policymakers Acted to Intervene Whenever The 10-Year Yields Hit 2%,” Song Said, Noting That The PBOC Had “Quitly Stopped Intertion” in Decumber.

Investors are expecting the Central Bank to Unveil Fresh Monetary Easing Steps this year, such as additional cuts to the main interest rate and the amount of cash that that canks must hold as reservoes. At the turn of the year, PBOC said it will cut key interest rates at an “Appropriate time.”

“The bank will enrich and improve Monetary Policy Toolkit, Conduct Buying and Selling of Treasury Bonds and Pay Attention to moves in long-term yields,” According to The statement on Jan. 3,

Prospects of rate cuts, however, will only keep the bond rally going.

Economists at Standard Chartered Bank See the bond rally to continue this year but at a slower pace. The 10-Year Yield May Fall to 1.40% at the end of 2025, they said in a note on time.

Credit Growth May Stabilize by Mid-Year as Stimulus Policies Start to Lift Certain Sector in the Economy, The Economists Said, Leading to a Slower Decline in Bond Yields.

China’s Central Bank Said Friday That It Would Temporarily Halt Buying Government Bonds Due to Excess Demand and Short Supply In the Market.