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China Money October 2023

China: Credit growth speeds up in October

In October, Chinese banks distributed CNY 738 billion in new yuan loans, down from September’s 2310 billion figure but slightly above market expectations. Money supply expanded 10.3% year on year in October (September: +10.3% yoy). 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—rose 9.3% in the month (September: 9.0% yoy), largely thanks to faster government bond issuance.

Meanwhile, the Central Bank left its key interest rate and the reserve requirement ratio for banks unchanged over the last month.

Credit growth could accelerate in the near term following the announcement in October that the central government would issue extra bonds, mainly to finance reconstruction spending following summer floods. Regarding interest rates, our Consensus is for the Central Bank to trim key policy rates by end-2024, though any monetary easing will likely be limited by the desire to support the yuan and the need to protect banks’ profit margins.

On credit growth, Nomura analysts said:

“With plans for the RMB1.0trn of extra central government bonds (CGB) to be issued in Q4, credit growth will likely rise further in coming months. All else being equal, the RMB1.0trn of new CGBs are likely to boost credit growth by 0.3pp y-o-y by year-end. However, as most of the proceeds from the new CGBs will be used to fund water infrastructure projects in the northern part of China, the impact on this year’s growth may be quite small as the winter approaches.”

On interest rates, Goldman Sachs analysts said:

“We still expect additional policy support for the remainder of this year, including another 25bp RRR cut and 10bp policy cut to accommodate bond issuance and boost growth/market sentiment. In our view, an easier policy stance is still needed to achieve 4.5% real GDP growth in 2024.”

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