China’s previous monetary stimulus ‘just isn’t working,’ a private survey shows

China’s monetary stimulus last year did little to boost loan demand in the second quarter — even though borrowing costs for businesses were lower than a year ago, according to China Beige Book survey released Friday.

It suggests rate cuts by the People’s Bank of China in August may have had limited effect in spurring growth, and throws doubt on whether the latest round of rate cuts in mid-June will be effective.

“For months, analysts have pumped the idea that Beijing has little choice but big-bang monetary easing,” said Leland Miller, chief executive of China Beige Book. “The PBoC started its push some months ago, and the string didn’t move.”

As the report pointed out, “We already have monetary stimulus, it just isn’t working.”

Weaker than expected economic growth in April and May have intensified calls for more decisive monetary measures to prop up growth in the world’s second largest economy, as a much-anticipated post-Covid rebound disappointed.

Major Wall Street banks — from Goldman Sachs and Bank of America to UBS and Nomura — recently cut their China growth projections.

China Beige Book found in its latest quarterly survey that national borrowing in the world’s second-largest economy fell to the lowest since it started collating data in 2010.

It also found that pent up demand for loans was even more lackluster than last year.

Easier credit conditions have been flowing to the property sector in China for months now, China Beige Book pointed out, but residential realtors reported month-on-month and year-on-year declines in sales and prices.

Still, the U.S. firm expects second-quarter growth in China to be stronger than the first, as data showed manufacturing, retail, and services reporting quarter-on-quarter revenue acceleration. The optimism was echoed by Chinese Premier Li Qiang earlier this week.

China Beige Book’s survey involved 4,604 respondents in China across two periods: in mid-April, and from mid-May to mid-June.

The report gives an early look at the state of China’s economy ahead of a series of official government data tentatively scheduled for release in mid-July.

“Markets have swapped hope in a consumption-powered recovery for a stimulus-driven one, but June data show consumer spending is still churning,” said Shehzad Qazi, China Beige Book’s managing director.

“Retail earnings accelerated, spending on travel and hotels is far from fading, and manufacturing revenue improved for a third consecutive month,” he added.

“China’s 2023 rebound isn’t sharp, but it’s also not finished yet.”

With the population’s greater affluence and more meaningful spending power, China’s economic recovery is driven largely by its first-tier cities, China Beige Book said.

Even then, there are challenges that survey participants flagged: weak prices as they work to preserve global market share in a global economic downturn.

This has been undoubtedly compounded by a weakening Chinese yuan, which hit an eight-month low against the U.S. dollar this week.

Market expectations for an economy recovery were perhaps overly optimistic — just as current market pessimism on China could be overblown, China Beige Book said.

“China’s second-quarter story is one in which one mistake breeds another,” Derek Scissors, China Beige Book’s chief economist said.

“If you believe the economy is terrible when it isn’t, you may anticipate major stimulus coming when it won’t,” he added.