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China Money February 2021

China: Credit growth picks up in February

In February, Chinese banks distributed CNY 1.4 trillion (roughly USD 210 billion) in new yuan loans, beating market expectations but down from January’s CNY 3.6 trillion figure—January is generally a bumper month for new loans due to seasonal demand.

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—rose from 13.0% in January to 13.3% in February. Annual growth in M2 money supply rose from 9.4% in January to 10.1% in February, above market expectations. The surprisingly strong February figures could be linked to reduced travel by migrant workers over the Lunar New Year period, which limited the disruption to business activity.

Looking ahead, credit growth is likely to gradually ease this year as the recovering economy allows the PBOC to withdraw more stimulus. That said, the Bank’s stance should remain accommodative, and most panelists see key interest rates staying unchanged this year.

According to David Wang, economist at Credit Suisse:

“Such fluctuations in TSF and M2 growth should not be construed as signs of more aggressive tightening by China’s monetary authorities. Looking ahead, we maintain our expectation that China’s monetary stance this year will include an only modest tightening relative to that of last year but still be more accommodative than that of 2019. We do not think there will be sharp deceleration to China’s credit growth and anticipate adequate liquidity to prevent a persistent increase in interbank rates in the months to come.”

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