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China Money October 2021

China: Credit growth broadly stable in October

In October, Chinese banks distributed CNY 0.8 trillion (roughly USD 150 billion) in new yuan loans, down from September’s 1.7 trillion figure, with the lower reading likely attributable to the national holiday period in the month.

Annual growth in M2 money supply edged up from 8.3% in September to 8.7% in October, while annual growth in the stock of total social financing (TSF)—a broader measure of credit and liquidity in the economy that includes loans, bonds and other non-traditional instruments—was stable at 10.0%.

In November, the Central Bank announced cheap loans for environmentally friendly projects at an interest rate of 1.75%, reducing the likelihood of cuts to the Bank’s main policy rates in the near term. Most of our panelists continue to see the Central Bank’s key policy interest rates remaining unchanged through to end-2022.

On the monetary policy outlook, analysts at Credit Suisse commented:

“There will not be another RRR cut before year-end. We expect monetary loosening to continue in 2022, but the room for additional loosening is limited, especially with the U.S. entering tapering. Specifically, we expect only one RRR cut next year in our baseline […] In contrast, we expect more policy support on the fiscal front next year relative to this year, likely in the form of a modest increase to the official fiscal deficit, and via greater issuance of special purpose bonds.”

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