China’s Credit Growth Jumps in August in Boost for Recovery

China’s credit growth rebounded to the highest since March, as a surge in government bond issuance and other easing policies continues to take effect and support the recovery.

Aggregate financing was 3.58 trillion yuan ($524 billion) in August, the People’s Bank of China said Friday. That compares to 1.7 trillion yuan in July and the median estimate of 2.59 trillion yuan. August usually sees an increase in credit compared to July.

China’s Credit Growth Jumps in August in Boost for Recovery

China’s economy has been recovering and the domestic Covid-19 outbreak is under control. The central bank has been trying to keep liquidity sufficient and the local government bonds sales to finance fiscal stimulus should continue to boost headline credit growth and the economy.

“Aggregate financing will most likely remain strong in September and October due to a large mandate for issuing government bonds,” Nomura Holdings Inc. Chief China Economist Lu Ting wrote after the data was released. “The strong August credit readings mean that the concerns of a PBOC tightening is overdone, that a rise in bond yields in the past couple of months is a reflection of high funding demand instead of a PBOC tightening.”

Financial institutions offered 1.28 trillion yuan of new loans in the month, slightly higher than estimates of 1.25 trillion yuan. New medium and long-term lending to households and non-financial companies continued to be strong, but overall lending growth was undercut by a fall in short-term bill financing to companies.

That was probably due to central bank efforts to reduce speculation and arbitrage.

What Bloomberg’s Economists Say...

Aggregate financing saw a strong reading and funding conditions eased, as seen in companies accessing more credit via loans and bonds. This takes some pressure off the People’s Bank of China to loosen policy -- but not enough to shift its stance from an incremental easing tilt.

David Qu, Bloomberg Economics

See full report here

By The Numbers

  • Broad M2 money supply grew 10.4% from a year earlier.
  • The stock of outstanding credit grew 13.3%, faster than the 12.9% increase in July.
  • All levels of government raised a net 1.38 trillion yuan via bond issuance in the month, the most since the start of comparable data in 2017. Earlier this week, the Ministry of Finance said local governments had sold about 1.2 trillion yuan of bonds in August.
  • The stock market also helped raise the total of direct financing, as non-financial businesses raised 128.2 billion yuan in equity sales, the most since late 2017. Companies sold 363.3 billion yuan worth of bonds.

©2020 Bloomberg L.P.

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