China: Credit growth eases in December, further gradual policy normalization likely ahead
In December, Chinese banks distributed CNY 1.3 trillion (USD 194 billion) in new yuan loans. The reading came in below the CNY 1.4 trillion recorded in November, and was broadly in line with market expectations.
Total social financing (TSF)—a broader measure of credit and liquidity in the economy that includes loans, bonds and other non-traditional instruments—fell from CNY 2.1 trillion in November to CNY 1.7 trillion in December. Market analysts had expected a reading of CNY 2.2 trillion. Annual growth in the stock of TSF dipped from 13.6% in November to 13.3% in December.
Annual growth in M2—the broadest measure of money supply in China—fell from 10.7% in November to 10.1% in December.
Our panelists see credit growth easing in 2021 as monetary policy normalizes following the Covid-19 shock. That said, the PBOC’s stance will stay accommodative to ensure the economy remains in recovery mode—particularly given uncertainty surrounding Covid-19—and most panelists see the Bank’s key interest rates staying unchanged this year. As analysts at Nomura comment:
“The new wave of Covid-19 and the reimposition of social distancing rules in North China strengthen our views that the withdrawal of policy stimulus will be gradual and moderate, the slowdown in credit growth will be moderate, and rate hikes are more likely to commence in 2022 than in 2021 (we have a high conviction that there will be no rate hikes in H1 2021). We believe Beijing will try to contain the rise in interest rates and funding costs to sustain the growth recovery, especially in view of the elevated uncertainty from Covid-19 and the external environment.”