China: Credit growth disappoints in October
In October, Chinese banks distributed CNY 615 billion in new yuan loans, down from Septembers 2,466 billion figure and undershooting market expectations. Meanwhile, 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—increased 10.3% in the month (September: 10.6% yoy). Money supply rose 11.8% year on year in October (September: +12.1% yoy).
Octobers underwhelming figures were the result of soft credit demand, due to pandemic restrictions and the property downturn. This is despite access to credit being eased by the authorities in recent months through cuts to interest rates and extra support to the housing sector.
Looking forward, credit demand will likely stay weak as long as Covid-19 restrictions are in place and the property crisis remains unresolved, although total credit supply will be propped up by monetary easing measures. The Consensus is for policy rates to be trimmed only marginally going forward, as the Central Bank is forced to balance the desire to support the economy with the need to protect the yuan.
On the credit outlook, Nomura analysts said:
“Looking forward, as regulators have reportedly asked banks to provide RMB1.0-1.5trn in new medium- to long-term loans to the manufacturing sector during August-December and RMB600bn to the property sector during September-December, and in view of the RMB250bn bond financing program to the private sector we expect growth in outstanding AF to stabilize and edge up slightly in coming months. However, we expect these credits to be used inefficiently because of the clogged monetary transmission channel and thus growth is likely to remain weak.”