China asks banks to increase loans and reduce debt risks

China’s central bank and financial sector regulators met with bank executives, asking them to increase lending to support the recovery, in a new sign of growing concern among monetary policymakers about deteriorating economic prospects.

Officials from “China Life Insurance Co” ( China Life Insurance Co) and stock exchanges attended the same meeting held on Friday, as the authorities discussed with representatives of the financial sector measures to prevent and reduce the risk of local government debt, according to a statement issued by the central bank on Sunday, as reported by Bloomberg East.

Last week, the people’s Bank of China unexpectedly cut its key interest rate by the largest amount since 2020 to support the economy, which is facing new risks from the deterioration of the real estate sector and weak consumer spending. The surprise move came shortly before the release of disappointing economic activity data for July, which showed declining growth in consumer spending, industrial production and investment in all areas, with rising unemployment.

The central bank’s statement said that major financial institutions, especially large state-owned banks, should increase loans and avoid large fluctuations in lending. Chinese banks in July extended the lowest monthly volume of loans since 2009, in another sign of weak demand in the economy, which increases the risk of prolonged financial deflation pressure.

The central bank said that regulators and financial institutions should coordinate in reducing the risks associated with local government debt and strengthen such monitoring.

The statement said that China should resolutely avoid systemic risks, which have an impact on the economy as a whole and their effects are not limited to a particular sector or sectors. The central bank reiterated that the authorities will work to improve mortgage policies, without providing details.

Officials expressed concern about the real estate market, where another major real estate developer is currently facing a debt crisis, while home sales continue to decline. The risks also extend to the financial sector, where a subsidiary of a major financial group, which was exposed to the real estate sector, defaulted on payments on some investment products.