The latest official data from the Chinese central bank points to a robust credit extension in November as Beijing endeavours to prime the economy and expand financial inclusion amidst trade tensions with the United States.
Figures released by the People’s Bank of China on 11 December indicate that renminbi loans saw a net increase of 1.25 trillion yuan in November, for a rise of 126.7 billion yuan or 79% compared to the preceding month.
Total social financing (TSF) for November lifted to 1.52 trillion yuan, or 1.09 times the reading for the previous month.
TSF serves as a broad measure of credit and liquidity in the Chinese economy, and was recently revised to include asset-backed securities, loan write-off and local government special bonds issuance.
As of the end of November outstanding TSF was 199.3 trillion yuan, for a YoY increase of 9.9%. The renminbi loan balance to China’s real economy was 133.76 trillion yuan, for a YoY rise of 12.9%, accounting for 67.1% of outstanding TSF.
Loans to the household sector increased by 656 billion yuan in November, for an on-month rise of 16%, with short term loans rising by 216.9 billion yuan (13%) and medium and long-term loans 439.1 billion yuan (17%).
Non-financial enterprise and agency and organisation loans increased by 576.4 billion yuan in November, for a rise of 53.8 billion yuan compared to the same period last year, and a rise of 426.1 billion yuan compared to the preceding month.
Short term loans in this category fell by 426.1 billion yuan, medium and long-term loans increased by 329.5 billion yuan, while notes financing increased by 234.1 billion yuan, and non-banking sector financial institution loans increased by 27.7 billion yuan.
The November M2 money supply balance was 181.32 trillion yuan, for a YoY rise of 8%, keeping on pace with the YoY growth rate for October, as well as the historic low first tapped in June of this year.
The November M2 growth rate marked a deceleration of 1.1 percentage points compared to the same period last year.
Figures released by PBOC on 13 July indicated that the M2 money supply balance was 177.02 trillion yuan as of the end of June, for YoY growth of 8%, and the lowest rate of growth since 1990.
Xiao Lei (肖磊), head of the 500 Jin Research Institute (500金研究院), said to Beijing Business Today that M2 growth rates can no longer be the sole benchmark for liquidity levels in the Chinese economy.
“Because the M2 base is becoming larger and larger, an M2 growth rate of 8% already isn’t so low, and at present is far higher than a GDP growth rate of 6.5%.
“Overall the monetary expansion volume is still quite large, and steady growth means that the overall monetary link remains loose.”
Xiao said that China’s inflation index is falling and financial market liquidity isn’t at all ample, while the stock and bond markets remain tepid.
For this reason if economic growth in China sees a decline Beijing could push M2 growth above the 8% level, yet is unlikely to tap 10%.
Xu Zhong (徐忠), PBOC’s research chief, recently said that blind expansion of M2 and TSF was not a viable option, and that the use of quantitative indices should be gradually scaled back in tandem with further strengthening of the role of price mechanisms such as interest rates and exchange rates.
According to Xu China’s economic growth is already primarily driven by domestic demand, with consumption and the services sector emerging as key drivers, both of which are less dependent upon capital availability than investment and manufacturing.
For this reason the correlation between M2 and TSF with the performance of the real economy is seeing a marked decline.
“Blindly chasing financial supply as measured by M2 and total social financing without thinking of ways to boost the real economy will not only fail to resolve the issue of contradiction of inadequate demand, it could also exacerbate upward pressure on goods and asset prices.”
