China new bank loans hit record $3.13 trln in 2021, despite drop in Dec

China new bank loans hit record $3.13 trln in 2021, despite drop in Dec
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Yuan banknotes are shown in this illustrative photo taken in Beijing on July 26, 2010. REUTERS/Jason Lee/File Photo

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  • New loans in December 1.13 trillion yuan vs. f’cast 1.25 trillion yuan
  • December Q2 Cash Supply + 9.0% year-on-year, versus a reading of +8.7%
  • December TSF 2.37 trillion yuan, against f’cast 2.45 trillion yuan
  • The central bank may opt for modest easing to support growth

BEIJING (Reuters) – New bank lending in China fell more than expected in December from the previous month, but lending for the full year 2021 hit a record high as the central bank slowly strengthened its policy support to ease a sluggish economy.

Chinese banks provided 1.13 trillion yuan ($177.56 billion) in new yuan loans in December, down from 1.27 trillion yuan in November and less than analysts’ expectations, according to data released by the People’s Bank of China (PBOC) on Wednesday.

Analysts polled by Reuters had forecast new yuan loans would fall to 1.25 trillion yuan in December. The proceeds were also down from 1.27 trillion yuan a year ago.

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But new bank lending hit a record 19.95 trillion yuan this year, up 1.6% from 19.63 trillion yuan in 2020 – the previous record – equaling more than the UK’s gross domestic product.

“December credit data was a little weaker than expected, but financing for the real economy is improving,” said Luo Yunfeng, an analyst at Merchants Securities.

China’s economy got off to a strong start in 2021 as activity continued to recover from the slump caused by the epidemic the previous year, but it has lost steam in recent months due to a downturn in the property market, curbs on industrial pollution, and severe COVID-19 restrictions. That hurt consumer confidence and spending.

Efforts by policy makers to control debt risks have also affected local government spending.

More support measures were seen

To support faltering growth, the central bank lowered the reserve requirement ratio (RRR) for banks on December 15, the second such step in 2021, as it released 1.2 trillion yuan of long-term liquidity to boost business activity. Read more

The Central Bank also cut interest rates on the approved facility by 25 basis points to support the rural sector and small businesses. Read more

Most analysts expect further rate cuts on loans this year, with some also making modest rate cuts if activity continues to subside. However, no further steep rate cuts are expected, especially as the Federal Reserve appears ready to start raising rates soon, which could lead to capital outflows from emerging markets. Read more

However, the real estate downturn is expected to continue in the first half of this year, with the recent domestic spread of the highly contagious Omicron variant posing a new challenge.

The Politburo, the country’s top decision-making body, said that China will continue to implement a proactive fiscal policy and prudent monetary policy in 2022. It will keep economic operations within a reasonable range in 2022.

“Debt-to-GDP dropped significantly by 10% in 2021, but with growth slowing below the comfort of policy makers

Analysts at Morgan Stanley said in a note earlier this week:

Other China watchers said there are indications in the recent data that the easy credit cycle may be shifting.

Central bank data showed that the broadband money supply M2 grew 9.0% from the previous year, the highest level in nine months and above expectations of 8.7% in a Reuters poll. M2 grew 8.5% in November compared to last year.

Outstanding yuan loans grew 11.6% in December from the previous year — the slowest expansion since May 2002 — compared with 11.7% growth in November. Analysts expected 11.7%.

But growth in total existing social finance (TSF), a broad measure of credit and liquidity in the economy, accelerated to 10.3% in December of the previous year and from 10.1% in November.

TSF includes forms of off-balance sheet financing found outside the traditional bank lending system, such as initial public offerings, loans from trust companies, and bond sales.

“Broad credit growth rebounded again in December amid increased policy support. We believe lending will continue to recover in the coming months although officials are likely to prevent a sharp jump,” Capital Economics said in a note.

“Credit growth is likely to continue to pick up in the coming months given the intensified efforts to lower borrowing costs and boost lending. However, policy makers still appear keen to balance their desire to ease the economic downturn and their concerns about high debt levels.”

In December, TSF fell to 2.37 trillion yuan from 2.61 trillion yuan in November. Analysts polled by Reuters had expected 2.45 trillion yuan.

(dollar = 6.3641 Chinese yuan)

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(Reporting by Judy Hua and Kevin Yao); Editing by Kim Coogle

Our Standards: Thomson Reuters Trust Principles.


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