China’s Credit Surged in January Before Virus Froze Economy

(Bloomberg) --

China’s overall credit growth surged in January, before the extended Lunar New Year holiday due to the coronavirus outbreak curtailed economic activity across much of the country.

• Aggregate financing increased 5.07 trillion yuan ($723 billion) last month, the highest since the current data series started in 2017. The median estimate was 4.2 trillion yuan.
• The stock of outstanding aggregate financing expanded by 10.7%, the same pace as in December, according to the statement from the People’s Bank of China.

Key Insight

• Financial institutions offered 3.34 trillion yuan of new loans in the month, versus a projected 3.1 trillion yuan.
• Broad M2 money supply grew 8.4% from a year earlier.
• Strong bank loans and government bond sales supported overall credit growth in January, with new yuan loans reaching an all-time high. That was even with the Lunar New Year starting early, cutting off a whole week of working days in the month. Shadow banking also increased for the first time since March 2019.
• Chinese banks usually start the year with a strong increase in lending and it’s necessary to account for that when analyzing what the economic impact will be. The shifting Lunar New Year holiday also tends to disrupt economic activity in the first two months of the year, and the quarantines and extra long break this year due to the viral outbreak will make that even more difficult.
• “Overall, the loan and credit numbers in January were very strong despite fewer working days, said Raymond Yeung, chief China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “Looking ahead, the PBOC and CBIRC will encourage more lending to boost economic recovery. It is now the demand side hindering loan growth. The risk is not solvency, but liquidity shortage.”

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• The PBOC adjusted the gauge for total financing in December to include sovereign and local government debt.
• Shadow banking increased for the first time since March 2019, gaining 180.9 billion yuan in total: entrusted loans fell 2.6 billion yuan, trust loans rose 43.2 billion yuan, and undiscounted banker’s acceptances increased 140.3 billion yuan.

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