(Yicai) Aug. 14 -- The amount of money borrowers owed Chinese lenders as of the end of last month increased but at a slower pace, according to the latest data from the country’s central bank.

China’s yuan-denominated loan balance rose 8.7 percent to CNY251.11 trillion (USD35.14 trillion) in July from a year earlier, with the increase narrowing 0.1 percentage point from June, data from the People’s Bank of China showed yesterday. New loans rose 8.3 percent to CNY255.43 trillion in the period.

The Chinese economic structure is accelerating its transformation, resulting in a gradual adjustment of real estate and local financing platform loans, which are highly dependent on credit funding, an expert told Yicai. However, demand for loans to new economic drivers, such as scientific and technological innovation and advanced manufacturing, remained weak in the short-term, leading to the decline in the loan balance growth in July, they added.

Lending to households fell by CNY210 billion (USD29.4 billion) last month, according to PBOC data. Short-term household loans plunged by CNY215.6 billion, while medium- and long-term ones rose by CNY10 billion (USD1.4 billion).

Credit is historically weak in July, said Zhou Maohua, macro researcher at the financial market department of China Everbright Bank. Demand from household consumption remained sluggish, especially for consumer durables, but housing demand seemed to have stabilized, he added.

China’s balance of M2, a broad gauge that covers cash in circulation and all deposits, surged 6.3 percent to CNY303.3 trillion as of July 31 from a year earlier. Meanwhile, the balance of M1, a narrow measure of money supply covering circulating cash and non-bank and non-government deposits, plunged 6.6 percent to CNY63.2 billion in the period.

The M2 growth remains under pressure because the general deposit outflow is not expected to reverse in the short term, given the advantage of wealth management products after the new round of interest rate cuts on July 25, said Wen Bin, chief economist at China Minsheng Bank.

Some corporate deposits were acquired with high interest rates, so the demand declined or flew to wealth management products, especially after the PBOC strengthened supervision, causing a sustained decline in M1 in recent months, the above expert noted.

China is expected to further loosen its monetary policy, with possible reserve requirement ratio and interest rate cuts this year, said Tan Yiming, chief fixed income analyst at Minsheng Securities.

With a clear signal of a better overseas environment, the Chinese monetary policy would have more potential to loosen, Wen noted, adding that RRR and interest rate cuts are expected later this year.

In the first seven months of the year, the country’s Chinese yuan-denominated loan balance increased by CNY13.5 trillion, according to the PBOC. New social financing declined by CNY3.2 trillion (USD447.5 billion) to CNY18.87 trillion in the period, of which loans to the real economy fell by CNY3.3 trillion to CNY12.4 trillion.

China’s issuance of bills rose by CNY214.6 billion in the seven months ended July 31 from a year earlier, the PBOC data also showed. The net financing of corporate bonds increased by CNY31 billion to CNY160 billion, while that of government bonds jumped by CNY290 billion to about CNY700 billion.

The data show that enterprises preferred to issue bonds rather than get loans, the above expert pointed out. Corporate bond financing has smooth channels and is better aligned with the economy’s transition.

Lacking effective financing needs, banks subsidize enterprises by increasing bill discounts in the short term, which provides financial support, according to Wen. Meanwhile, with bill rates falling, small- and medium-sized enterprises’ bill financing costs are expected to decline, boosting financing demand.

Editor: Futura Costaglione