J.P Morgan On China Credit

The US bank updates it thinking post Friday's China credit figures. It expects credit growth to remain subdued this year and looks for one 10bp policy cut.

J.P. Morgan: "Regarding the key credit components, household loans picked up moderately in June, possibly reflecting modest sequential improvement in home sales. Medium and long term loans to corporates ticked up in June (in line with regular seasonal pattern), likely suggesting ongoing industry policy support. On the fiscal side, net government bond issuance eased modestly, after the significant pickup in May. Shadow credit continued to contract.

The general softness in recent credit data not only reflects weak credit demand, but also raises concerns of credit supply constraints, as banks’ NIM pressure and slower profit trend restrain their ability to support loan growth and digest bad debt. We expect credit growth to stay subdued for the rest of the year, with TSF growth at 8.1% and loan growth at 8.4% by the year-end.

Our forecast looks for one 10bp policy rate cut in the current quarter (likely in September), which is also the only cut in 2024. The positive news of softening inflation in the US and a repricing of first Fed rate cut to September open the door for the PBOC to shift focus from currency stability to domestic issues."