China policy outlook

China’s credit accelerates under further policy support

On April 11th the People’s Bank of China (PBC, the central bank) released data showing stronger than expected credit growth. Renminbi bank loan issuance in March rose to Rmb3.1trn (US$487.4bn). The flow of total social financing (TSF) also rose sharply to Rmb4.7trn. Growth of TSF stock quickened to 10.6%.

Why does it matter?

The strong credit numbers echo policy signals released at and after the “two sessions” legislative meetings in early March. New renminbi bank loans were up by Rmb400bn (US$62.8bn, or by 14.6% year on year) mainly as banks aligned themselves with pro‑growth calls by extending short-term credit. New local government bond issuance more than doubled from a year earlier, and two forms of shadow banking—undiscounted banker’s acceptances and entrusted loans—turned positive after having tumbled in February. Growth in the broad money supply (M2) accelerated to 9.7% year on year, from 9.2% in February.

However, an improvement in credit demand related to house purchase and corporate investment remains elusive. New mid- and long-term household loans (mostly mortgages) were the lowest since 2016, despite easier access to mortgages, as struggling property markets across China were further hit by rigid coronavirus-related lockdowns in March. New mid- and long-term corporate loans increased by only 1% year on year. Total mid- and long-term loans to households and corporates in the first quarter are about Rmb1.7trn less than the same period last year.

What next?

EIU now believes that China will miss its growth target of 5.5% for 2022, in the wake of the severe covid‑19 outbreaks in Shanghai and other cities. The central government is likely to announce further fiscal support soon, along with cuts in required reserve ratio and policy rates by the PBC and further relaxations in local property markets. However, we expect these measures to only partially offset downward growth pressures, and the government will eventually settle for modest underperformance relative to its growth target. We now plan to revise down our full‑year GDP growth forecast to 5.2%.

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