China's July Loan Contraction: A 20-Year First Amid Economic Challenges

In July, China's new yuan loans contracted for the first time in 20 years, falling significantly below predictions as the economy grappled with low private demand amid trade negotiations with the U.S. Despite this, broader credit growth improved, indicating that the central bank may not rush to adjust policies.

For the first time in 20 years, China's new yuan loans contracted in July, highlighting the challenges the economy faces amid ongoing trade talks with Washington. The contraction, totaling a decrease of 50 billion yuan ($6.97 billion), significantly undercut even the lowest of analyst forecasts, revealing weak private sector demand.

Despite the weak credit data, increases in broader money supply suggest a stabilization effort from the central bank. "Monetary policy has entered a period of observation," commented Xing Zhaopeng, senior China strategist at ANZ, downplaying the likelihood of imminent rate cuts.

The contraction drew attention due to its magnitude, as corporate loans also saw sharp declines, reflecting ongoing issues in China's property market. Analysts are concerned that the economic pressures will continue in the second half of the year, exacerbated by sluggish domestic demand and global trade uncertainties.

(With inputs from agencies.)