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China Money September 2022

China: New loans surge in September as government steps up stimulus

In September, Chinese banks distributed CNY 2465 billion in new yuan loans, up from July’s 1250 billion figure and markedly outpacing market expectations. Money supply increased 12.1% year on year in September (August: +12.2% 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—increased 10.6% in the month (August: 10.5% yoy).

September’s stronger-than-expected loan data was a reflection of Beijing’s push to speed up corporate lending for infrastructure projects. However, household lending—particularly for mortgages—was still notably below the levels of a year ago, due to subdued consumer confidence.

Looking forward, this two-speed lending picture is likely to persist, with strong infrastructure spending contrasting weak household lending. Consumers are unlikely to significantly boost their demand for loans until the property market stabilizes and the government drops its zero-tolerance Covid-19 approach. Meanwhile, the Central Bank kept key policy rates unchanged over the last month.

On future credit growth, analysts at Nomura said:

“Regulators reportedly asked banks to provide RMB1.0-1.5trn in new medium- to long-term loans to the manufacturing sector during August-December and RMB600bn to the property sector during September-December and in view of the newly added RMB500bn net funding quota for local government special bonds, we expect growth in outstanding TSF to stabilize at its current level in coming months. However, we expect these credits to be used inefficiently and the monetary transmission channel to be clogged as Beijing vows to stick to its zero-Covid strategy and fails to reboot the property sector.”

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