Since the start of August, the bill market has mirrored trends from late July, with bank acceptance bill (BAB) discount rates stubbornly hovering at 0.5%, fueling concerns about credit activity. As of Monday, August 10, the discount rate for six-month BABs from major state-owned banks remained at the 0.5% "floor price," while the three-month rate has been stuck at 0.51% since last week.

Due to their dual "credit and liquidity" nature, bill rates are often seen as a leading indicator of credit demand. A sharp drop in rates at month-end typically signals weak loan demand. Unlike past credit-sluggish months, which occasionally saw rates near zero, BAB discount rates have held a 0.5% floor since July, guided by regulatory measures. However, amid stable prices and rising volumes, many institutions believe banks, especially major ones, still have a strong need to meet quotas, continuing the practice of "using bills to pad loans." This follows three consecutive months of bill financing exceeding year-on-year growth by over 400 billion yuan.

The 0.5% floor for BAB discount rates has persisted. Since late July, the rates for major maturities of state-owned bank BABs have remained flat at 0.5%, forming an unusually stable low level. By August 4, the three-month rate had edged up to 0.51%, while the six-month rate stayed at 0.5%. A source from a city commercial bank in East China stated that the 0.5% floor is a unified requirement from relevant authorities. Earlier reports indicated that regulators have instructed some institutions to avoid BAB discount transactions below 0.5% to curb loan-padding activities. "BABs are essentially low-yield assets. Their main holding purpose is driven by assessment needs, outweighing market demand or profit motives. Major banks are the key players, so capping the price is beneficial," said an insider. While 0.5% isn't strictly a "loss-making line," it helps alleviate the negative effects of "internal competition" for quota padding under regulatory guidance.

Some market participants noted that bill rate fluctuations are complex, influenced by seasonal factors and the money market. However, the effectiveness of this price control in curbing quota padding is uncertain. "If credit demand remains weak and bank assessment mechanisms don't change, the impact needs further observation," the city commercial bank insider commented. Since late July, while rates haven't fallen sharply, demand has exceeded supply in terms of volume. Overall, July's bill rates followed a pattern: "rising in early July, then falling; rising in mid-July, then hitting a bottom and rising again; and stabilizing in late July." According to Pulan Financial Services data, July six-month state-owned bank BAB discount rates (excluding rural banks) ranged from 0.37% to 0.55%, with a monthly volatility of 18 basis points; three-month rates ranged from 0.49% to 0.78%, with a volatility of 29 basis points. "In late July, with strict scale and price controls, major banks continued to buy at 0.5%, while smaller banks also aggressively acquired bills, with sellers raising offers to above 0.5%. However, selling sentiment was low, and market supply of bills was tight, keeping rates steady at 0.5%," a Pulan report noted.

Regarding the July month-end rate staying at 0.5%, Wu Jiajun, a trader from Zhejiang Securities' bill business department, noted that amid a bill shortage, transactions have begun involving cross-product deals, such as bundling bill trades with certificates of deposit, bonds, or deposits, suggesting the actual traded rate for bills is below 0.5%. Wang Yifeng, chief financial analyst at Everbright Securities, also observed that "in July, the average discounts for one-month, three-month, and six-month BABs were 0.51%, 0.59%, and 0.48%, respectively, down 9 BP, 0 BP, and 21 BP from June. Late July prices stabilized at the 0.5% floor, and banks' willingness to buy bills remained strong."

Expectations for July credit are still cautious. In late June, amid stable interbank liquidity, already low bill rates saw a significant and sustained decline. On June 30, rates for three-month and six-month state-owned BABs fell to 0.35% and 0.54%, with short-term rates approaching zero. According to central bank data, new loan growth in June continued to slow year-on-year, impacted by a "slowing and quality-improving" trend, structural changes in financing, and a high base effect from the previous year. New household loans totaled only 264.6 billion yuan, down more than half year-on-year; new corporate loans reached 1.5 trillion yuan, a year-on-year decrease of 270 billion yuan. While the decline in corporate loans was smaller than that in household loans, combined short-term and medium-to-long-term corporate lending fell by 790 billion yuan year-on-year. Meanwhile, new on-balance-sheet bill financing increased by 525.3 billion yuan year-on-year, contributing significantly more to new loan growth than in the same period last year—a rare occurrence for a traditionally strong loan month like June. Since April, bill financing has seen year-on-year growth exceeding 400 billion yuan for three consecutive months. In the first half of the year, within corporate new loans, bill financing grew by 860.7 billion yuan year-on-year, short-term loans by 290 billion yuan, while medium-to-long-term loans fell by 1.62 trillion yuan.

The persistent "substitution" of bills for loans reflects insufficient real-economy financing demand. According to new data from the National Bureau of Statistics, affected by seasonal factors and extreme weather, China's major economic indicators in July showed a decline in overall activity. The Manufacturing Purchasing Managers' Index (PMI) fell to 49.2%, down 1.1 percentage points from the previous month, entering contraction territory for the first time since March. The Non-Manufacturing Business Activity Index dropped to 49.0%, down 1.2 percentage points, and the Composite PMI Output Index fell to 49.3%, down 1.3 percentage points. In terms of inflation, the Consumer Price Index (CPI) fell 0.1% month-on-month in July, with the decline narrowing by 0.2 percentage points, while rising 0.5% year-on-year. The core CPI, excluding food and energy, rose 0.3% month-on-month and 0.9% year-on-year. The Producer Price Index (PPI) fell 0.7% month-on-month due to imported and seasonal factors, but rose 3.5% year-on-year, a 0.6 percentage point slowdown from June.

Regarding July credit, institutions generally expect steady social financing growth, but the "slowing and quality-improving" trend as the main theme, with monthly new loans likely to decline seasonally. Wang Yifeng predicts that after June-end banks used short-term corporate loans and bills to meet quotas, the rolling over of these loans will put pressure on July's mid-month loan figures, potentially showing a significant decline. Loan-padding demand may increase again in late July, but due to regulatory guidance on bill discount prices, banks may shift from bill padding to short-term corporate loans or interbank borrowing. In recent years, regulators have repeatedly urged financial institutions to abandon "scale obsession," emphasizing the need to revitalize existing financial resources and improve credit asset quality. Following People's Bank of China Governor Pan Gongsheng's June remarks at the Lujiazui Forum that "loan slowdown and quality improvement may become a new normal in macro operations," the central bank's monetary policy department head, Xie Guangqi, reiterated in July that "a single loan indicator cannot fully reflect the real economy's financing situation." Looking ahead to the third and fourth quarters, with the peak construction season approaching, accelerated use of new policy-oriented financial instruments, and rising expectations for additional stimulus policies, market optimism for macroeconomic activity and credit demand recovery is growing. Wang Yifeng emphasized that the July Politburo meeting sent a "steady growth" signal. "Moving forward, as existing policies take effect and new policies are prepared, physical work volume is expected to accelerate in key areas like the 'six networks' project construction. Stabilizing investment to drive growth could provide a new fulcrum for credit expansion, and the year-on-year pressure on credit activity may ease slightly."