Jump in loans shows support for real economy: experts
China's money supply expanded faster than expected in January, thanks mainly to a record increase in yuan-denominated lending, official data showed Tuesday.
While the market had already anticipated substantial credit growth for the first month of the year, the figures released by the central bank Tuesday were still far beyond expectations, showing the enhanced support by financial institutions for the real economy, experts said Tuesday.
China's M2 - a broad measure of money supply that covers cash in circulation and all deposits - grew by 14 percent year-on-year to 141.63 trillion yuan ($18.1 trillion) by the end of January, above previous market expectations of a 13.5 percent rise, according to data released Tuesday by the People's Bank of China (PBOC), the central bank. It also marked the country's highest M2 growth in 19 months.
"While the M2 growth was higher than expected, it is actually understandable for the central bank to inject more-than-expected liquidity given the economic slowdown and capital outflows," Xu Bin, professor of economics and finance at the Shanghai-based China Europe International Business School, told the Global Times on Tuesday.
The PBOC injected 1.53 trillion yuan of liquidity via open market operations as well as short- and medium-term lending tools in January, according to a Reuters report on February 1.
Short-term tools are flexible, but if the market faces long-term liquidity problems, it would still be necessary for the central bank to reduce banks' reserve requirement ratio (RRR), Xu noted, forecasting that there will be one or two RRR cuts in the first half of this year.
Record loans
The liquidity injections by the PBOC secured ample interbank liquidity, allowing commercial banks to grant more new loans, Nomura China economist Chen Jiayao wrote in an e-mail sent to the Global Times on Tuesday. Chen noted that the strong M2 growth was mainly driven by rapid credit expansion during the same month.
Tuesday's data also showed that Chinese banks issued 2.51 trillion yuan worth of new yuan-denominated loans in January, up 1.04 trillion yuan compared with the same period in 2015 and marking a new monthly high. The previous market consensus had been that new yuan lending would surge to 1.9 trillion yuan, more than triple the previous month's 597.8 billion yuan.
In the same month, the country's total social financing aggregate - a broad gauge of liquidity in the economy, including bank loans, corporate bonds and other equity financing - grew 1.61 trillion yuan month-on-month and 1.37 trillion yuan year-on-year, according to the PBOC data.
The yuan-denominated lending surged significantly in January, and in terms of the lending structure, corporate medium- and long-term loans and corporate bond financing registered sharp gains, pointing to strengthened support for the real economy via indirect and direct financing, said a report Bank of Communications sent to the Global Times on Tuesday.
At the end of 2015, the central government issued a series of measures to stabilize growth, including the launch of various infrastructure projects.
This had the effect of boosting demand for medium- and long-term credit, the report noted, adding that another factor behind the record new lending may be that January usually sees commercial lenders being more generous in granting loans due to their lending arrangement schedule.
According to Xu, the figure of 2.5 trillion yuan is likely to be the highest monthly lending of this year.
China's banks issued 11.7 trillion yuan in new lending in 2015, a record high, data from the central bank showed in January, but as the January figure was so high, "I don't think we'll see a higher number for new loans in the following months," Xu noted.
But with the weakening effect of monetary policy stimulus, it is likely that this year's total new lending will surpass the level of 2015 as the real economy still requires strong financial support, he said.
