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China Money September 2023

China: Credit data for September is muted; Central Bank keeps rates unchanged

In September, Chinese banks distributed CNY 2310 billion in new yuan loans, up from August’s 1360 billion figure but slightly below market expectations. Money supply grew 10.3% in year-on-year terms in September, which was a deterioration from August’s 10.6% increase and marked the worst reading since March 2022. Finally, the stock of total social financing (TSF)—a broader measure of credit and liquidity in the economy—increased 9.0% in September, matching August’s figure.

Regarding monetary policy, the Central Bank has left key interest rates and the reserve requirement ratio for banks unchanged over the last month, following policy easing in August and September. In mid-October though, the Bank injected 289 billion yuan of fresh liquidity into the banking system, the largest amount in nearly three years. Looking ahead, our panelists expect policy rates to be trimmed by the end of next year—but only slightly, as the authorities will want to balance support for the economy with the desire to protect the yuan, which has depreciated close to 6% against the USD so far this year.

On the latest credit data and the near-term credit outlook, Nomura analysts said: “Steady credit growth lends support to our view of growth stabilization in September. Looking into Q4, we expect credit growth, measured as year-on-year growth of outstanding TSF, to remain subdued, while the low base from last year could increase credit growth at the margin. However, we remain cautious about the growth outlook, as recent stabilization could be short-lived and the economy still faces strong headwinds from fading pent-up demand for in-person services, contracting exports and the faltering property sector (especially in low-tier cities).”

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