China: Credit growth rises and new loans soar in January
In January, Chinese banks distributed a record CNY 4.0 trillion (roughly USD 640 billion) in new yuan loans, up from December’s 1.1 trillion figure. Loans tend to be front-loaded at the start of the year, but January’s figure was also much stronger than the corresponding month of 2021. Annual growth in M2 money supply rose from 9.0% in December to 9.8% in January, 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—increased from 10.3% to 10.5%. The loan and M2 figures beat market expectations by a wide margin.
The improvement in credit conditions in January came as a result of recent easing by the PBOC, in the form of cuts to several policy rates and the reserve requirement ratio (RRR). Looking forward, further monetary easing is likely later this year in order to support the weak property sector and the economy more broadly. The recent drop-off in producer price inflation—if maintained—should provide some scope for such easing.
On January’s reading and the implications for activity ahead, Iris Pang, chief economist for China at ING, commented:
“Most of the loan growth came from corporate longer-term loans. […] This matches our expectation that investment in semiconductors, telecommunications, healthcare, data privacy and hardware infrastructure projects started in January. The increase in loan growth indicates positive momentum in investment in the first and second quarters.”
That said, analysts at Nomura were less upbeat:
“We should not assume the upside surprise in January credit data will be quickly transformed into an upside surprise in economic performance. The frontloading lending to local governments and corporates (especially SOEs) will likely taper and could be unwound in just a couple of months. In our view, growth headwinds remain quite strong.”