China: Underlying credit growth eases further in January
In January, Chinese banks distributed CNY 3.6 trillion (USD 555 billion) in new yuan loans. The reading marked a record high, coming in above the CNY 1.3 trillion recorded in December, and was broadly in line with market expectations. January is generally a bumper month for new loans due to seasonal demand.
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—fell from 13.3% in December to 13.0% in January. Annual growth in M2 money supply fell from 10.1% in December to 9.4% in January, below market expectations of 10.0%.
January’s reading is a reflection of the Central Bank’s cautious policy approach, which aims to balance supporting the economy with safeguarding against financial risks. Looking ahead, credit growth is likely to gradually ease further this year as the recovering economy allows the PBOC to withdraw more stimulus. That said, most panelists see the Bank’s key interest rates staying unchanged this year.
According to analysts at Nomura:
“As the new Covid-19 wave appears to have been gradually brought under control, we expect both credit demand and economic growth to recover after February, although year-on-year growth in outstanding TSF may moderate further on a high base. We continue to expect outstanding TSF growth, which rose from 10.7% y-o-y at end-2019 to 13.3% at end-2020, to gradually slow to around 11.5% towards end-2021. […] Beijing will maintain its pledge to avoid any sharp shift in policies, and so its pace of normalisation will likely be highly contingent on the Covid-19 situation.”