Easing in new credit reflects shadow banking slowdown

Aggregate financing for last month comes in at 938.7 billion yuan, lagging a 1.31 trillion yuan estimate, amid a tightening in the loan market

PUBLISHED : Tuesday, 11 March, 2014, 1:13am
UPDATED : Tuesday, 11 March, 2014, 1:13am

The mainland's broadest measure of new credit trailed analysts' estimates last month, indicating a slowdown in shadow banking following the near-default of a trust investment product.

Aggregate financing was 938.7 billion yuan (HK$1.18 trillion), the People's Bank of China said yesterday, compared with the 1.31 trillion yuan median estimate of analysts surveyed. New local-currency loans were 644.5 billion yuan, accounting for about 69 per cent of aggregate credit, the largest proportion since July.

Reining in a US$6 trillion shadow-finance industry would help cut risks of financial turmoil while buoying chances that Beijing will boost pro-expansion policies to meet a growth target of about 7.5 per cent this year.

Exports unexpectedly fell last month by the most since the global financial crisis, while producer prices had the biggest drop since July.

"Off-balance-sheet activity has been curtailed and contained," said Ding Shuang, senior China economist at Citigroup. "The policy stance is very obviously less accommodative than in the first half of last year. Under those macro policies, we think it would be quite challenging to achieve 7.5 per cent [gross domestic product] growth."

The policy stance is obviously less accommodative than in the first half of last year

People's Bank of China governor Zhou Xiaochuan may elaborate on the central bank's policy in a briefing today in Beijing with other mainland financial regulators.

The lending figures were released after the close of the mainland's stock markets. The benchmark Shanghai Composite Index fell 2.9 per cent, the most since June, after figures on foreign trade and producer prices released over the previous two days disappointed. The yuan weakened 0.22 per cent to 6.1416 against the US dollar after the central bank cut the reference rate by 0.18 per cent.

Li Daokui, a former academic adviser to the central bank, said the mainland's growth would hit bottom at 7.4 per cent in the second quarter, spurring the government to take steps such as allowing more private investment projects. Authorities might also make the supply of funds "less tight", Li said.

M2, the broadest gauge of money supply, rose 13.3 per cent from a year earlier, after January's pace of 13.2 per cent. New local-currency loans compared with the 730 billion yuan median estimate of economists and January's 1.32 trillion yuan.

The mainland in late January averted its first trust default in at least a decade as investors in a 3 billion yuan high-yield product issued by China Credit Trust were bailed out days before it matured.

In another sign of financial stress, solar-cell maker Shanghai Chaori Solar Energy Science & Technology said on Friday that it would not be able to make an interest payment due last week, providing the first default in the mainland's onshore bond market.

A drop in new trust loans was "perhaps affected by the payment issues in some trusts", said Wang Tao, chief China economist at UBS. The data should not "have much implications for growth and policy in the next few months" amid the holiday distortions, she said, referring to the Lunar New Year holiday, which started on January 31.

"I still think the government will pursue a neutral set of policies," Wang said.