October credit growth was well below market expectations, after a stronger rebound in headline credit in August and September. More interesting, however, is that all potential sources of credit demand within China’s economy—corporates, local governments, and households—appear to be under pressure. This suggests that the rebound in loan growth at the end of Q3 was driven by refinancing, and perhaps banks frontloading credit ahead of expected declines in lending rates, rather than an appetite for new investment that would suggest an upturn in cyclical activity in Q4 2019 and early in 2020. Lower funding costs and policy interest rates, beyond the PBOC’s limited cut on November 5, will be necessary to drive a rebound in credit demand next year.
