China seeks economic, political stability with the ‘vigour of an uncaged tiger’ as loans soar
- Chinese banks extended a record monthly high of 3.98 trillion yuan (US$626 billion) in new loans in January, representing a year-on-year increase of 11.5 per cent
- It cut two major policy rates last month to reflect mounting pressure for pro-growth measures after the economic growth rate slowed to 4 per cent in the fourth quarter
China is making efforts to stabilise the economy and ensure political stability ahead of a key high-level leadership meeting with the “vigour of an uncaged tiger” by allowing bank lending to hit a record high last month.
January bank lending in China is often high as lenders tend to front-load loans at the beginning of the year, while it is also an indication of the government’s stance for the whole year.
Last month, banks in China extended a record monthly high of 3.98 trillion yuan (US$626 billion) in new loans, a year-on-year increase of 11.5 per cent, the People’s Bank of China (PBOC) said on Thursday, up from 1.13 trillion yuan in December.
After unprecedented tightening in 2021, China is refocusing on ensuring reasonable growth with wide-ranging policy initiatives
“After unprecedented tightening in 2021, China is refocusing on ensuring reasonable growth with wide-ranging policy initiatives,” said Morgan Stanley economists led by Robin Xing.
“We see it as the return of credit and fiscal impulse, calibration of regulatory reset, and a gradual shift from Covid-zero to Covid-light, fuelling the economy with the vigour of an uncaged tiger.”
“A new easing cycle has started since the policy pivot in the Politburo meeting last December,” said Larry Hu, chief China economist at Macquarie Capital.
It is in stark contrast to the United States, where the US Federal Reserve is under pressure to increase interest rates after inflation hit a 40-year high of 7.5 per cent in January.
Authorities have already accelerated the construction of projects planned for 2021-25, and allocated a new special purpose bond quota of 1.46 trillion yuan in December.
“Looking ahead, more easing measures will come through, as policymakers will do whatever it takes to defend a 5 per cent [gross domestic product] growth bottom line for this year,” Hu added.
The PBOC, though, is well known for its precaution against all-out stimulus, a lesson it learned from the 2008 injection that created a mountain of local debt and inflated home prices.
On Tuesday, Guo Shuqing, who is the party chief of the central bank and also the chairman of the China Banking Regulatory Commission, ordered state-owned asset management companies to tackle the bad assets of small- and medium-sized financial institutions.
Premier Li Keqiang is due to release China’s 2022 GDP target, fiscal deficit ratio and special purpose bond issuance quota at the start of March.
Markets are more willing to see enforceable and strong fiscal policies. It is the key to turn around market expectations
“Fiscal deficit is not a flood or beast, but an important tool to smoothen [out fluctuations of] economic cycles,” said Zhu He, deputy head of research at the Beijing-based think tank, the China Finance 40 Forum, on Wednesday.
“Markets are more willing to see enforceable and strong fiscal policies. It is the key to turn around market expectations.”
The think tank has called for a new policy mix to reduce the side-effects of stimulus, including a rate cut of 25 basis points each time until growth returns to a desired range.
A fiscal subsidy to support bond issuance and policy loans to ensure an annual growth of more than 10 per cent for infrastructure investment, as well as non-intervention in exchange rates to absorb external shocks, should also be considered, the think tank said.
