Tightening fears recede as mainland lending spikes

Bank loans accelerate on the mainland despite central bank's bid to reduce liquidity, bolstering confidence that economy is recovering

PUBLISHED : Thursday, 12 December, 2013, 3:29am
UPDATED : Thursday, 12 December, 2013, 3:29am

New bank lending on the mainland quickened last month and a broad measure of liquidity accelerated sharply, adding to signs that the economy is regaining momentum and relieving market fears of monetary policy tightening.

Banks made 624.6 billion yuan (HK$797.5 billion) worth of new yuan loans in November, higher than a forecast of 590 billion yuan and well above the previous month's 506.1 billion yuan, data released yesterday by the People's Bank of China showed.

The mainland's total social financing aggregate, a broad measure of liquidity in the economy, jumped to 1.23 trillion yuan last month, up from 856.4 billion yuan in October.

Rising money market rates and bond yields indicate the central bank is committed to deleveraging the economy by tapping the brakes on liquidity conditions, but there is little sign of a sharp turnaround in monetary policy.

"China's money and credit showed steady growth in November, reflecting robust demand for credit as the economy is on track for recovery," said Jiang Chao, analyst at Haitong Securities in Shanghai. "We expect total new yuan loans for this year to reach nine trillion yuan and the annual figure for next year will be around nine to 9.5 trillion yuan."

Broad M2 money supply rose 14.2 per cent last month from a year earlier, the central bank said in a statement on its website. M2 growth this year looks almost certain to surpass the central bank's target of 13 per cent. It is widely expected to stick with the same target next year.

Outstanding yuan loans rose 14.2 per cent from a year earlier.

"It will lead people to wonder how adamant are the authorities to rein in credit growth, how serious are they to contain the increase in leverage," said Louis Kuijs, chief China economist at Royal Bank of Scotland in Hong Kong.

The pace of credit extension was "still rather strong", suggesting a "continued rapid increase" in the ratio of credit to gross domestic product, Kuijs said. "That increase in leverage needs to moderate."

The mainland should phase out its "proactive" fiscal policy, which resulted in a large deficit and adds to risks from local-government debt, according to a front-page commentary in yesterday's China Securities Journal, which is operated by Xinhua. The fiscal policy stance has been in place since 2008, while Beijing has said since 2010 that it is implementing a "prudent" monetary policy.

A cash crunch in June, marked by record-high money-market interest rates, indicated the central government was reining in speculative lending after a record credit boom earlier in the year. The People's Bank of China said in a report last month that the economy "may see a decline in leverage" over a relatively long period.

Reuters, Bloomberg