China’s Credit Better Than Forecast Despite February Holiday

China’s credit expansion slowed in February during a traditionally slow month for lending because of the Lunar New Year holidays, but the drop was less than economists forecast.

  • Aggregate financing was 1.71 trillion yuan ($263 billion), the People’s Bank of China said Wednesday. That compares to 5.17 trillion yuan in January and 873.7 billion yuan in the same month last year. The median estimate in a Bloomberg survey of economists was 910 billion yuan
  • Financial institutions offered 1.36 trillion yuan of new loans in the month, versus a projected 950 billion yuan. Banks made 1.1 trillion yuan worth of medium and long-term loans to non-financial companies
China’s Credit Better Than Forecast Despite February Holiday

Key Insights

  • With the economy’s recovery gaining traction, authorities have signaled they will scale back the fiscal and monetary stimulus pumped into the financial system during the pandemic last year, with officials worried about the build-up in debt and risks of asset bubbles
  • “The high credit growth reflects that the economy’s recovery momentum will continue,” said Ming Ming, head of fixed income research at Citic Securities. The higher-than-expected credit expansion could be a result of multiple factors, including a low base due to the Covid outbreak last year, robust growth in long-term corporate loans, and people taking out more loans because of the hot property market in the biggest cities, he said
  • The central bank wants to keep the growth of money supply and aggregate financing in line with the expansion of nominal gross domestic product, Deputy Governor Chen Yulu said in an interview published Tuesday during the annual National People’s Congress meeting
  • The government is targeting real GDP growth above 6% and 3% inflation this year

What Bloomberg Economics Says

“The faster-than-expected expansion in aggregate social financing and acceleration in broad money supply (M2) growth are supportive for the economy, but probably won’t unnerve the People’s Bank of China. The credit expansion was mainly in the form of corporate loans, which the PBOC tends to favor.”

-- David Qu, China economist

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  • In February, broad M2 money supply grew 10.1%, higher than the previous month’s pace of 9.4%
  • The stock of outstanding credit rose 13.3% to 291.4 trillion yuan in February, faster than the 13% expansion in January. The stock of outstanding yuan loans rose to 176.8 trillion yuan
  • Shadow banking -- comprising entrusted loans, trust loans and undiscounted banker’s acceptances -- fell 39.6 billion yuan last month
  • Corporate bond issuance was 130.6 billion yuan, while government bond financing was 101.7 billion yuan

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