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China Money April 2023

China: Credit data disappoints in April

In April, Chinese banks distributed CNY 718.8 billion in new yuan loans, down from March’s 3890 billion figure and half the figure that markets were expecting. Meanwhile, the stock of total social financing (TSF)—a broader measure of credit and liquidity in the economy—expanded 10.3% in the month (March: 10.3% yoy). Money supply rose 12.4% year on year in April (March: +12.7% yoy). Weak mortgage loans dragged on the April data.

On the monetary policy front, in May the Central Bank injected more liquidity into the financial system, and reportedly called on commercial banks to lower deposit rates. This followed a cut to the reserve requirement ratio in March. However, key Central Bank policy rates were left unchanged over the last month. Looking ahead, most analysts see policy rates broadly unchanged by year end, although some see mild monetary easing to support the recovery.

On the recent move to cut deposit rates and the outlook, Nomura analysts said:

“Since these deposits only account for 10% of total bank deposits, and as the caps on these deposits are not binding for large banks, we believe this cut will have a very limited impact. Still, this sends a signal that the PBoC is trying to lower market rates and will help relieve banks from narrowed net interest margins. Amid a weakening post-Covid recovery, the PBoC’s guidance to cut deposit rates, ongoing disinflation, falling market rates and the Fed signalling a potential pause, we continue to believe a PBoC policy lending rate cut is becoming more likely, although it is still not our central case.”

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