With China’s latest housing bubble once again in full swing, when as reported overnight the average new-home price in China’s 70 cities rose 1.2% in August, the biggest monthly increase in six years…
… the euphoria for home purchases can be easily explained: an epic burst of mortgage loan issuance, serving as the false foundation for China’s latest home buying spree.
… has plunged to all time lows. Specifically, the willingness of Chinese companies to borrow reached dropped to the lowest print in the series’ 12 year history, according to a survey published by the country’s central bank on Sunday.
Amid China’s accelerating economic slowdown, the country’s overall index of loan demand was at 55.7 in the third quarter, the lowest since the People’s Bank of China started to compile the data in 2004. The index of loan demand from medium-sized enterprises fell to 52 and for small business to 55.8, both historic lows. However, the figure for large corporations slightly rebounded at 51.4, up 0.1 points from a quarter earlier.
Faced with a slower economy, small and medium-sized enterprises (SMEs) now find it difficult to expand their businesses, said an SME loan manager at one of China’s midtier commercial banks who did not want to be named, citing bank policy against speaking to the media. He said his bank has been losing borrowers since the first half of 2015.
Additionally, banks have imposed tougher rules on approving loans to SMEs amid rising non-performing loans. Tighter restrictions, in turn, have cooled companies’ enthusiasm to seek new funds from banks, the SME loan manager said.
And here is a stunning statistic you will likely not hear anywhere else as it may shake the very foundations of China’s house of cards: “20% to 30% of his business customers haven’t repaid their debt, he said.”
As we have reported for years, in the latest period, 12 out of China’s 16 publicly listed banks saw a rising level of non-performing loans in the first half of 2016 compared with the same period a year before.
At the same time, and explaining the rise in NPLs, the demand by manufacturers for loans declined in the third quarter, falling to 46.8 from the second quarter’s 48.
Chinese manufacturers’ growth stagnated in August, with the Caixin China Purchasing Managers’ Index coming in at 50, down from 50.6 the previous month. The PBOC’s index of loan demand from the non-manufacturing sector remained unchanged at 55.1.
Some more Chinese fiction peddling: more than half of the bankers from the 3,100 institutions surveyed by the central bank said the national economy in the third quarter was “cooling down,” while 44.6 percent of them thought the overall trend looked “normal.” That’s more than half who said China’s economy was set for more economic deterioration.
Finally, of the 20,000 residents surveyed, 53.7% said the housing prices are “high and unacceptable,” 0.3 percentage points more than in the second quarter. Only 3.4 percent described prices as “satisfactory,” and the remaining 42.9% considered them “acceptable.” Then again, if loan demands continues to collapse at this record pace, the clearest indication yet that China is indeed headed for a hard landing despite the trillions in new loans created (which go who knows where if they are not actually demanded), all those house prices will soon become far more affordable.