Chinese credit improves on sales of government bonds and short-term loans


(Bloomberg) — China’s credit expansion stabilized in December, led by an unseasonal spike in government bond sales and a jump in short-term corporate borrowing that compensated for a decline in loans to households.

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  • Total funding stood at 2.37 trillion yuan ($372 billion) last month, the People’s Bank of China said on Wednesday, down from November but up from December 2020.

  • Financial institutions offered 1.13 trillion new loans during the month, also down from the previous month.

  • Outstanding loans outstanding rose 10.3 percent to 314 trillion yuan, faster than November’s 10.1 percent expansion. M2 broad money supply increased by 9% in December, compared to 8.5% in November.

With China’s economic growth slowing due to weak private demand and a real estate crisis hitting home sales and loan demand, there are growing expectations that the central bank ease its credit policy to try to stimulate demand in early 2022. The government has also pledged to accelerate investment, pushing faster sales of infrastructure bonds from the end of 2021 to pay for spending .

“Local governments rushed to sell debt in November and December because issuance was slow in the first months of 2021. That’s why total social financing looked higher,” said Ming Ming, head of of Fixed Income Research at Citic Securities Co. “New lending fell as credit is generally weaker in December. More importantly, banks lent less as they prepared to lend in January.

Mid-term and long-term household loans, which are a proxy for mortgages, rose by 356 billion yuan in December. It was the lowest since February 2020, when the country was essentially shut down to control the initial Covid-19 outbreak.

What Bloomberg economists say…

Total social funding was higher than seasonal models, but “a lot of it was government funded. Corporate funding – where the money is really needed – has been weak, even with a boost from the reduction in the reserve requirement ratio for banks.

This underlines the need for the authorities to take further steps to improve credit conditions. The urgency is growing, with slowing economic growth and the corporate bond market under considerable strain, especially for struggling property developers.

— David Qu, Economist

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Business invoice financing, which is a type of short-term credit, was the highest since January 2019 in December, while medium and long-term lending to non-financial businesses fell from November. The shadow banking sector – comprising entrusted loans, fiduciary loans and undiscounted bankers’ acceptances – fell 641 billion yuan, down for an 11th consecutive month.

Chinese banks were likely lending to each other in December as they raced to meet government credit quotas. However, since the start of this year, they seem to have reduced their lending to each other, a sign that they are lending more to businesses and households, as they tend to do at the start of each year.

The PBOC pledged to make the overall credit expansion more stable at a meeting with major political and commercial banks last month, and financial regulators called on banks to increase lending to the housing sector in the first quarter. To ease the industry’s liquidity crunch, after property development loans fell for two straight quarters through September. The PBOC also advised banks to cut the benchmark one-year policy rate by 5 basis points and reduce bank reserve requirements.

Annual new yuan loans reached 19.95 trillion yuan in 2021, higher than 19.6 trillion yuan in 2020. The PBOC focused on containing rising debt in the economy in the year last and maintained tight restrictions on financing for property developers, after the stimulus during the pandemic pushed debt levels to a record high in early 2021.

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