New loans extended by mainland banks and non-bank entities grew more than anticipated last month, suggesting there is ample liquidity available to support a recovery in the world's second-largest economy.
Banks doled out 1.06 trillion yuan (HK$1.31 trillion) of new local-currency loans in March, 51.5 billion yuan more than a year ago, the People's Bank of China said yesterday. M2, a broad measure of money supply, rose 15.7 per cent year on year last month, exceeding the official full-year target of 13 per cent.
"Credit and monetary data were above market expectations, mainly reflecting the desire of the central bank to keep liquidity ample," said Song Yu, a China economist at Goldman Sachs.
Mainland policymakers are walking a tightrope this year as they try to engineer a recovery from the slowest economic growth in 13 years and at the same time contain inflation and financial risk arising from rapidly developing non-bank lending.
Aggregate financing, including bank and non-bank credit as well as bond and equity issuances - so-called total social financing - amounted to 2.54 trillion yuan in March, 673.9 billion yuan more than a year ago, the central bank said.
In the first quarter, bank loans accounted for 44.7 per cent of aggregate financing, 18.6 percentage points lower than a year ago. The proportion of aggregate financing made up of trust loans increased by 8.8 percentage points to 13.4 per cent during the quarter, with the amount of new trust credit surging 360 per cent year on year.
Lu Ting, an economist at Bank of America Merrill Lynch said: "The strong credit figures could once again trigger fears about inflation, property bubbles, government debt and shadow banking. Some moderate monetary tightening is expected in the second half."
China's foreign exchange reserves rose to a record US$3.44 trillion from US$3.31 trillion over the first quarter, higher than market expectations.
Zhu Haibin, an economist at JP Morgan Chase Bank, said that the capital outflow seen during most of last year, which had been associated with concerns over the country's economic slowdown and an end to expectations of one-sided yuan appreciation, "likely reversed course" early this year.
Capital inflows are expected to add to pressure for the yuan to strengthen. The yuan has been trading at historic highs against the US dollar in the past few days, as investors flush with funds stemming from quantitative easing in developed countries bet on faster economic growth in emerging economies.
However, Zhang Zhiwei, chief China economist at Nomura Securities said: "Despite the loose monetary stance, the economic recovery has been shallow and there are incipient signs that the growth momentum may have slowed last month, suggested by weak electricity consumption and freight traffic growth."
China is due to release key figures on economic activity next week, including data showing industrial output, fixed-asset investment and retail sales.