New yuan loans
Although Chinese money supply growth was quite strong in July, the aggregate financing was weak. In this article, we’ll see how the new yuan loans progressed during July. New yuan loans refer to new lending minus repaid loans. The People’s Bank of China (or PBOC) releases this data on a monthly basis, along with other credit measures that we discussed in the previous article.
New loans pick up
New yuan loans for July amounted to 1,480 billion yuan, compared with 1,279 billion yuan for June. Economists expected the new yuan loans to come in at 738 billion yuan. For the first seven months of 2015, the new yuan loans reached 8.04 trillion yuan, compared with 6.12 trillion yuan for the same period last year.
The new yuan loans came in higher than aggregate financing for July, which is an uncommon phenomenon. According to many market participants, this may be due to the collapse of shadow banking in China, which was spurred by the Chinese equity market crash.
Impact on economic activity
Lending activity, as evidenced by new yuan loans, has picked up in China. Credit growth has been strong for the last two months, which is likely due to easing measures taken by the Chinese government. Any such sustained pickup would be positive for the manufacturing and construction activity in the country, which has positive spillover effects on the steel industry and, ultimately, iron ore.
In turn, this would be positive for the seaborne iron ore players that supply the bulk of their production to China. These players include BHP Billiton (BHP) (BLT), Rio Tinto (RIO), Vale SA (VALE), Fortescue Metals Group (FSUGY), and the Asia–Pacific segment of Cliffs Natural Resources (CLF). CLF forms 3.8% of the SPDR S&P Metals and Mining ETF (XME).