China’s Credit Growth Holds Up in December

(Bloomberg) --

China’s overall credit growth held up in December and a gauge of borrowing costs fell, signaling that policy makers are beginning to see some progress in channeling credit to the economy.

The stock of outstanding aggregate financing expanded by 10.7% in the 12 months to December, the same pace as in November, the People’s Bank of China said Thursday. The previous total financing measure was adjusted to include sovereign and local government debt, the PBOC said. The growth rate refers to an adjusted historical series for the purposes of comparison.

The amount of new bank loans in the month slipped slightly, to 1.14 trillion yuan ($166 billion), versus a projected 1.2 trillion yuan. Broad M2 money supply grew 8.7% in the month from a year earlier. The weighted average interest rate on ordinary loans fell to 5.74%, the lowest since mid-2017. Despite monetary easing throughout last year, borrowing costs remained stubbornly high and the recent data will encourage policy makers attempting to brake China’s economic slowdown into 2020.

The uptick in money supply at the end of a year when banks are usually short of credit quota added to evidence domestic demand is recovering amid continuous policy easing and a trade thaw with the U.S. The PBOC has pledged to keep monetary policy flexible in 2020 and keep credit expansion in line with the growth of nominal gross domestic product.

What Bloomberg’s Economists Say..

“Recent data have revealed some stabilization in the economy, and 4Q GDP data due on Friday are expected to show growth holding at 6% year on year. External pressures have eased somewhat with a ‘phase one’ trade deal with the U.S. Even so, the economy is still under considerable strain -- and this will require further policy support.”

David Qu and Chang Shu

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“Interest rates in the open market are largely stable now,” Sun said. The PBOC will “continue to conduct open market operations to ensure market stability ahead of the Spring Festival, as well as providing favorable financial conditions for the real economy.”

Sun also said the average reserve requirement ratio level for all banks is 9.9% after the cut earlier this month. “It’s at an appropriate level,” he said. While there’s still room for more cuts if economic growth warrants, that room is “limited,” he said.

“We expect further policy easing to be implemented” though the scale of stimulus would be moderate, Wang Tao, chief China economist at UBS Group AG in Hong Kong, wrote in a note before the data. “More details of policy support measures will be announced in the upcoming National People’s Congress meeting in March.”

Statistical Change

The methodological change to the total-social financing gauge -- China’s broadest measure of credit growth that includes regular bank loans, shadow banking and now sovereign and local debt -- had little impact on the pace of credit expansion in December.

Including sovereign and local government debt into aggregate financing can “reflect the intensity of both monetary policy and fiscal policy,” said PBOC spokeswoman Ruan Jianhong. The new gauge can “help improve policy setting and implementation.”

Some economists were skeptical of the change.

“Local bonds and government bonds belong to fiscal policy, and by adding them into the gauge, it actually mixes the fiscal policy together with monetary policy,” said Ding Shuang, chief China and North Asia economist at Standard Chartered Bank Ltd. in Hong Kong. ““After taking out the bond element, we found that in general the credit growth in 2019 was faster than 2018, pointing to a more accommodative environment.”

Shadow banking -- consisting of entrusted loans, trust loans and undiscounted bankers’ acceptances - continued to contract in 2019. The stockpile stood at 22.22 trillion yuan at the end of year, down from 24 trillion yuan at the end of 2018.

--With assistance from Miao Han and Tomoko Sato.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net;Heng Xie in Beijing at hxie34@bloomberg.net

To contact the editor responsible for this story: Jeffrey Black at jblack25@bloomberg.net

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With assistance from Bloomberg