China keeps credit tap open to bolster growth despite a spike in pork-driven consumer inflation
- The People’s Bank of China (PBOC) said banks extended 1.69 trillion yuan (US$240 billion) in September, a rise from 1.21 trillion yuan in August.
- September’s consumer price index rose to 3.0 per cent, largely due to soaring pork prices, hitting the upper limit of Beijing’s consumer price index for 2019
China’s central bank maintained its support for businesses and households in September, and is determined to provide more financing help even after consumer inflation hit the limit of the government’s comfort zone due to soaring pork prices.
Aggregate financing, which measures the country’s overall credit to the real economy and includes bank loans, bond issuance, trust loans and bill financing, rose from 1.98 trillion yuan in August to 2.27 trillion yuan last month.
The growth of M2, the broad measure of money supply, increased by 8.4 per cent by the end of September, up 0.2 percentage points from a month earlier.
The month-on-month rise was partly due to the PBOC’s adjustment of aggregated financing, which included some asset-backed securities, mainly those issued on stock exchanges, said Ruan Jianhong, head of the central bank’s statistics department.
Ruan added that the growth in loans and credit highlighted a recovery in the demand for credit.
A PBOC survey in over 300 cities also showed that corporations still have strong demand for credit, with around 60 per cent of those surveyed stating that demand will increase in the fourth quarter of 2019, according to Ruan.
The rise in lending in September could be due to seasonal factors as loans often increase at the end of each quarter, however, there is evidence that marginal loosening of monetary policy is having an effect.
The money market interest rate has declined by nearly one percentage point from a year earlier, a signal of ample liquidity after the PBOC’s cut of the required reserve ratio three times so far this year, including a targeted cut effective on Tuesday that freed up 50 billion yuan (US$7 billion) of funds for selected commercial banks.
While the authority has so far refrained from the excess stimulus, an expensive lesson learned from the 4 trillion yuan (US$566 billion) post-financial crisis package, some analysts are wondering how policymakers can wait.
Mark Williams, chief Asia economist of Capital Economics, pointed at headwinds ahead, such as higher food inflation and cooling global demand.
“Policymakers have largely defied calls for additional easing in recent months. But we think that a renewed slowdown in growth will push them to do more,” he said.
The prolonged trade war with the United States, coupled with domestic constraints, has already plunged the economy to a 27-year low and could drag the headline figure down further in coming quarters.
But the necessity for bigger stimulus remains under debate ahead of the two key tone-setting conferences – the Communist Party’s fourth plenum and the quarterly meeting of the 25-member Politburo, both of which will convene later this month.
Beijing’s policymakers may have to address the short-term economic vulnerability, consider changes with regards to the country’s long-term development strategy and also prepare for the worse-case scenario in the trade war with the US.
In a report released last week, the World Bank said debt and financial sustainability must be considered in any stimulus and warned that China’s reliance on credit to support growth may worsen domestic risks.
“Additional monetary stimulus, if necessary, should be undertaken in a way that will not reverse the success of the government’s campaign to limit financial risks,” it said.