China Money January 2017


China: Bank lending soars in January

February 14, 2017

Chinese banks extended CNY 2.03 trillion (USD 296 billion) in new yuan loans in January, nearly doubling December’s CNY 1.04 trillion and marking a one-year high. Despite January’s surge, the print undershot the CNY 2.44 trillion the markets had expected. In the 12 months up to January, new yuan loans totaled CNY 12.2 trillion (December: CNY 12.6 trillion).

Total social financing (TSF)—a broader measure of credit and liquidity in the economy that includes loans, bonds and other non-traditional instruments—jumped from CNY 1.63 trillion in December to January’s all-time high of CNY 3.74 trillion. The print beat market analysts’ expectations of CNY 3.0 trillion.

January’s surge in liquidity mostly reflects seasonal factors as banks tend to frontload their loans early in the year in order to maintain their market share.

Meanwhile, annual growth in M2—the broadest measure of money supply in China—stabilized at December’s 11.3% in January. The reading was in line with what markets had expected.

In an unexpected move, the People’s Bank of China decided to tighten its monetary policy on 3 February. Instead of using its high-profile tools, the 1-year deposit and the 1-year lending rates, the Bank decided to hike the 7-day, 14-day and 28-day reverse repo rates by 10 basis points to 2.35%, 2.50% and 2.65% respectively. The PBOC also raised the overnight, 7-day and 1-month standing lending facility (SLF) rates by 35 basis points, 10 basis points and 10 basis points to 3.10%, 3.35% and 3.70% respectively. While the rate hikes will have a modest impact on the economy, they could indicate the first step towards a tighter monetary policy stance. These moves also reinforce the view that Chinese authorities are shifting their focus from shoring up growth to taming rising capital outflows, controlling financial risks and pushing forward financial deleveraging. Moreover, this hints at the possibility that the government could rely more on fiscal support rather than monetary stimulus to keep growth afloat if needed.

FocusEconomics Consensus Forecast participants expect M2 to expand 11.5% in 2017, which is up 0.2 percentage points from the previous month’s forecast. In 2018, the panel sees M2 growth of 10.7%.

Author: Ricard Torné, Lead Economist

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China Money Chart

China Money January 2017 0

Note: New yuan loans in CNY billion and year-on-year variation of M2.
Source: People’s Bank of China (PBOC) and FocusEconomics calculations.

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