China's new loans fall in July, a first in two decades

A key measure of lending at Chinese banks contracted for the first time in two decades in July while broad credit growth slowed, as borrowing demand languishes in a deflating economy.

Financial institutions recorded a decrease of ¥49.9 billion ($7 billion) of yuan-denominated new loans in the month, according to figures released by the People's Bank of China on Wednesday, in the first decline since July 2005.

The rare drop, driven by a net repayment from borrowers, adds to a slew of signs that households and companies have become even more reluctant to take on debt. Instead, the focus is on paying down what they owe, as their outlook on future income and growth dims.


With government stimulus so far failing to spur enough optimism to lift economic momentum, authorities this week announced a plan to subsidise part of the interest payments on some consumer loans.

The contraction is "alarming by itself," said Michelle Lam, Greater China economist at Societe Generale SA. "That could be the reason why the government announced the interest rate discount policies earlier this week."

Consumer loans have collapsed over the past year as people turned more frugal and their wealth plunged with the property market. Households net repaid ¥383 billion worth of short-term loans, in the first seven months of this year-the first in records going back to 2009.