China Money December 2021


China: Credit growth rises slightly in December amid policy easing

January 12, 2022

In December, Chinese banks distributed CNY 1.1 trillion (roughly USD 180 billion) in new yuan loans, down from November’s 1.3 trillion figure. Annual growth in M2 money supply rose from 8.5% in November to 9.0% in December, 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—inched up from 10.1% to 10.3%. That said, housing loans were weak amid the ongoing downturn in the property sector.

The rise in credit growth in December came against a backdrop of PBOC easing during the month, in the form of a 50 basis-point cut to the reserve requirement ratio (RRR), and a 5 basis-point cut to the Loan Prime Rate. Moreover, in January the PBOC cut additional interest rates by 10 basis points. The moves were aimed at propping up a stuttering economy.

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 December’s reading and the implications for activity ahead, Iris Pang, chief economist for China at ING, commented:

“This month's small growth in credit shows that despite cuts to RRR and interest rates, banks are reluctant to lend as their concern is more about credit quality. This is because several big corporates have recently defaulted. Though the default entities are mostly real estate developers, the risk is increasing to the suppliers, mostly in the industry of construction materials. […] That means that even a loosening monetary policy may not boost economic activity.”

FocusEconomics Consensus Forecast participants expect M2 to expand 8.6% in 2022, which is down 0.1 percentage points from last month’s forecast. In 2023, the panel sees M2 growth of 8.5%.

Author:, Economist

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China Money Chart

China Money December 2021

Note: New yuan loans in CNY billion and year-on-year variation of M2.
Source: People’s Bank of China (PBOC) and FocusEconomics calculations.

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