China's central bank has plenty of reasons to loosen policy as deflationary pressures in the economy deepen, but record credit growth is likely to limit the extent of any monetary support it's able to provide.
to prioritise consumer-driven growth this year, but policies so far have channelled funds into large infrastructure projects, manufacturing and other sectors the government deems as strategic.New household loans, mainly mortgages and consumer loans, accounted for 16% of total new loans in the first quarter, despite a jump in mortgages in March, while corporate loans made up for the rest.
The labour market remains weak, with youth unemployment near record highs of 20%. Consumer confidence is off record lows, but remains below the range set over the past two decades. "The focus of macroeconomic policies has not yet transitioned from protecting market entities on the supply side to protecting low- and middle-income families on the demand side," said Zhang Ming, senior economist at the state-backed Chinese Academy of Social Sciences, in a recent report.
Worryingly for PBOC, its latest survey showed that in the first three months of the year, the share of respondents saying they preferred to save was still high at 58%, albeit down 3.8 percentage points from the prior quarter. New household deposits were 9.9 trillion yuan in January-March – more than half the record 17.8 trillion yuan reported for all of last year."Demand is weak and supply is excessive, that's for sure," a policy adviser said on condition of anonymity.
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