BEIJING–China’s central bank so far has failed to lift the world’s second-largest economy out of its doldrums, and that is in part because of businesspeople like Li Jun.
Mr. Li runs a fish-farming business in eastern China’s Jiangsu province. The People’s Bank of China is pushing the country’s big, state-owned banks to lend more money to businesses like his. Instead of taking the cash, Mr. Li is cutting back.
“Banks are willing to lend to me, but I’m borrowing less because I’m not expanding my business that much,” said Mr. Li, chairman of Jiangsu Haihao Agriculture Development Co. “The market is not looking good, which makes me more cautious.”
The central bank this week is injecting 500 billion yuan ($81 billion) into China’s five major state-owned banks, according to a senior banking executive briefed on the decision. The move–which is expected to channel money to areas the government deems important, such as public housing and small business–marks the latest of a series of targeted easing measures meant to arrest a slowdown in China’s economic growth.
Results from many of these efforts have yet to show up in economic data. Economists and analysts say some of the difficulty stems from the traditional reluctance of China’s big banks to lend to small business–a hesitance that is increasing as economic growth slows and the prospect of soured loans increases.
But they also say a lack of real demand for loans, rather than a shortage of credit, is holding the economy back. That explains a recent drop in the rate of overall credit expansion in China despite the PBOC’s efforts, and shows the limited power the central bank has in getting the economy going.
“There’s plenty of money. People just don’t want to use it,” said Derek Scissors, a resident scholar at the American Enterprise Institute, a Washington-based think tank. “Dumping yet more money in isn’t going to change that.”
Central bank officials didn’t respond to requests for comment.
Stock markets in Hong Kong and Shanghai ended higher on Wednesday, responding to news of the central bank’s move. The Chinese yuan reversed a weakening streak against the U.S. dollar, and yields on 10-year government bonds fell.
In terms of injecting money into the financial system, the latest step was roughly equivalent to slashing the percentage of deposits banks must hold as reserves at the central bank by half a point. In the past, the central bank has used such reductions to spur growth across the economy.
Now, though, the bank is aiming its stimulus more narrowly–a strategy meant to avoid a massive lending spree such as the one that propped up growth following the 2008 global financial crisis, but also saddled the economy with debt. Other initiatives have included a three-year, 1 trillion yuan loan to China Development Bank, a so-called policy lender that backs housing and other government projects, plus measures to encourage more lending to private businesses and rural areas.
Despite those efforts, credit growth in China has been sluggish. New lending by Chinese banks jumped in August from July but was still below year-earlier levels. Meanwhile, in July and August, overall new lending–as represented by total social financing, a broad measure of credit extended by both banks and other financial institutions–was roughly half the level of last year.
A lending index in the city of Wenzhou, a place famous for its entrepreneurs that is seen as a bellwether for both small businesses and China’s informal lending system, showed interest rates have been flat since last year. Rates would have fallen had the easing efforts been more successful.
The numbers come amid signs of weakened domestic demand: Imports have been sluggish, and the property market is slumping. Economists also say Beijing’s two-year anticorruption campaign is casting a chill over consumption and investment.
Many Chinese companies appear less eager to spend. At PetroChina Co., the U.S.- and Hong Kong-listed arm of China National Petroleum Corp., capital expenditures fell 15.8% during the first half of the year, compared with a year earlier. The company’s profit during the period rose 4% to 68.1 billion yuan.
At China’s largest refiner, China Petroleum & Chemical Corp., known as Sinopec, capital expenditures also fell, led by spending slowdowns in its exploration-and-production and marketing-and-distribution segments.
Despite the PBOC’s efforts to make credit more available, some private businesses still complain about the difficulty in getting financing, an indication that China’s big banks may remain reluctant to lend for fear of bad loans.
“We never get loans from domestic banks as we are a private, asset-light company,” said Gu Wu, president of HK (Shenzhen) Industries Development Co., a maker of electronic products based in the southern boomtown of Shenzhen. “We have no plant, no land, so no any domestic banks would like to lend money to us, even as the central government wants to offer support to us.”
Mr. Li, the owner of the fish-farming business in Jiangsu, said in the past few years, he used to borrow between 200 million yuan and 300 million yuan a year from banks as he built up his business. But so far this year, he has borrowed less than 100 million yuan.
“You have to pay 20% higher than the benchmark rate for a bank loan these days, versus about 10% last year,” he said. “I don’t want to be a slave to banks.”
For now, economists expect the central bank to resist calls to take more dramatic moves, such as lowering interest rates. So far, the PBOC has fended off calls to broadly loosen monetary policy, fearing such a move would worsen China’s debt problems and put the economy at greater risk.
Since early last year, when President Xi Jinping gave Gov. Zhou Xiaochuan a third term at the helm of the central bank, the PBOC has seen its influence on economic matters grow. Mr. Zhou has long championed changes intended to spur competition among state-owned banks and put more money in consumers’ pockets, two long-term goals embraced by China’s top leaders.
“A rate cut is probably not imminent, though we continue to believe one is likely by year end,” said Wang Tao, China economist at UBS AG.
Brian Spegele, Bob Davis, Kersten Zhang and Lilian Lin contributed to this article.