China Credit Growth at Record in January Amid Seasonal Surge

(Bloomberg) -- China’s credit growth exceeded expectations in January amid a seasonal lending surge at the start of the year.

• Aggregate financing was 4.64 trillion yuan ($685 billion) in January, the People’s Bank of China said. That compares with an estimated 3.3 trillion yuan in a Bloomberg survey
• Financial institutions made a record 3.23 trillion yuan of new loans, versus a projected 3 trillion yuan. That was the most in any month back to at least 1992, when the data began

Key Insights

• Growth in M2 broad money supply and aggregate financing is reasonable and the macro leverage ratio remains stable, which means China isn’t flooding the financial system with liquidity and the monetary policy stance hasn’t changed, Sun Guofeng, director of the PBOC’s monetary policy department, said at a press conference Friday.
• Asked if an interest-rate cut was possible, Sun said the central bank should “focus more on the changes in real interest rates,” which have declined since last year, and let policy rates be better transmitted into lending costs.
• While the data may relieve some concerns over a deceleration in the world’s second-largest economy, distortions caused by the Lunar New Year holiday timing make it tough to get a definitive read on the health of the broader economy. The government and central bank have been rolling out measures aimed at spurring lending, especially to smaller businesses.
• “China has been encouraging credit supply, and the effect of that is showing in January," said Ding Shuang, chief economist at Standard Chartered Ltd. for Greater China & North Asia, adding that the seasonal lending increase at the start of the year also contributed. "The authorities have been tackling the supply side of the credit, and more proactive fiscal policies will help on the demand side."
• China’s 10-year government bond futures erased an advance of as much as 0.32 percent after the data release, reflecting abating bets on any imminent easing of monetary policy. The contracts were up 0.05 percent as of 3:15 p.m. local time.

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• Policy makers are struggling to arrest the economic downturn with months of targeted stimulus measures. The central bank has added liquidity through five cuts to the reserve-requirement ratio since early 2018, but hasn’t shifted the more powerful one-year lending rate since 2015. That’s spurred some economists to bet an interest-rate cut may be coming soon.
• Broad M2 money supply increased 8.4 percent
• The government announced new policies to help private and small companies get financing this week, including further boosting lending, expediting stock listing reviews and supporting bill financing. That’s the latest in a raft of policies -- including inventing new central bank policy tools -- to relieve the funding pressures faced by those businesses, which are usually less able to access bank loans than bigger, state-owned companies.
• That support is also reflected in January’s shadow banking data, which rose for the first time in 11 months. Growth in off-balance sheet financing will continue to decline but the pace will decelerate, Ruan Jianhong, director of the PBOC’s statistics and analysis department, said at the press conference.

--With assistance from Tian Chen, Xiaoqing Pi and Yinan Zhao.

To contact Bloomberg News staff for this story: Malcolm Scott in Hong Kong at mscott23@bloomberg.net;Miao Han in Beijing at mhan22@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger

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With assistance from Bloomberg