China’s central bank expected to use ‘variety of tools’ to ensure ample liquidity and reasonable economic growth
- Beijing’s insistence on a tighter monetary approach, as well as more deleveraging, has raised concerns about the national economy
- Analysts expect a gradual improvement of credit to both enterprises and households, as well as further loosening by the central bank
China’s central bank could become more accommodative towards supporting the country’s growth, after new data showed that mortgage lending and the level of local government bonds issued rose last month.
Commercial banks extended 826.2 billion yuan (US$129.3 billion) worth of new loans in October, an increase of 136.4 billion yuan (US$21.34 billion) from a year earlier, according to new data released by the People’s Bank of China (PBOC) on Wednesday.
Aggregate financing, an indicator that measures the country’s overall funding for the real economy, was 1.59 trillion yuan last month – an increase of 197 billion yuan from a year earlier.
Alongside stable lending rates, the central bank also maintained liquidity in the market in support of potentially more issuances of special-purpose bonds, which are instruments used by local governments to raise funds, particularly for construction and projects. The bank’s latest data showed that, in October, local government bond issuance was 123.6 billion yuan higher than it had been a year prior – reaching 616.7 billion yuan.
Meanwhile, the growth of M2, the broad measure of money supply, grew 8.7 per cent last month, 0.4 percentage points higher than a month earlier.
“The growth of bank credit and aggregated financing has stabilised, with their monthly amount slightly higher than our expectations,” said Wen Bin, chief analyst at China Minsheng Bank.
“The central bank is expected to use a variety of tools to ensure reasonably ample liquidity, while improving its structural monetary policies to help key areas and weak links and to ensure that growth occurs in a reasonable range.”
In a sign of a growing pivot on that policy, in the past two months, central regulators started to fine-tune the country’s property policies, including by convening meetings with property developers, implementing a soft loosening of mortgage loans for homebuyers, and offering development loans for qualified developers.
Tang Jianwei, a senior economist with the Bank of Communications, said the household sector has felt the easing, but corporate credit demand remained weak and is a concern of policymakers.
“We expected a gradual improvement of credit to both enterprises and households, because the central bank recently stressed the stability of credit growth and vowed to guide more commercial bank loans,” he said.
“The financial data showed that more economic-stabilisation policies could be in the pipeline,” Huatai Securities chief economist Yi Huan wrote in a research report this week.
But chief China economist for Macquarie Capital, Larry Hu, warned that appetites for credit were already low and well-contained, especially with firms showing caution and using only short-term loans. Easing in property policies can afford to be more generous, he added.
“Credit demand is now at the bottom of this down-cycle. Looking ahead, we expect credit growth to stabilise at the current level of 10-10.5 per cent,” he wrote in a note on Wednesday.
“More monetary easing will come.”
