China: Policy easing and a seasonal effect boost credit growth in January
February 15, 2019
In January, Chinese banks distributed CNY 3.23 trillion (USD 477 billion) in new yuan loans, the highest print on record. The reading was well above both the CNY 1.08 trillion distributed in December and market expectations of CNY 2.80 trillion. In the 12 months up to January, new yuan loans totaled CNY 16.5 trillion (12 months up to December: CNY 16.2 trillion).
Meanwhile, annual growth in M2—the broadest measure of money supply in China—rose from December’s 8.1% to 8.4% in January. The reading overshot market expectations of an 8.2% increase and marked the highest print in six months.
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 CNY 1.59 trillion in December to an all-time high of CNY 4.64 trillion in January.
January’s strong print reflects Chinese banks frontloading loans early in the year in order to gain market share and attract higher-quality clients. On top of this seasonal pattern, credit and money data for January also reflected more accommodative fiscal and monetary policies in order to rekindle economic growth.
Raymond Yeung, Greater China Chief Economist at ANZ, warns that:
“Our understanding is that the regulators have urged banks to boost lending in a display of monetary policy support for the real economy. Today's figure reflects the ‘window guidance’. Our concern is that this policy cannot guarantee the efficient allocation of financial resources. China’s credit conditions seem to have improved but the eventual growth impact will remain uncertain.”
China M2 Money Supply Forecast
FocusEconomics Consensus Forecast participants expect M2 to expand 8.6% in 2019, which is down 0.1 percentage points from last month’s forecast. In 2020, the panel sees M2 growth of 8.6%.