Leading Chinese economist Lian Ping (连平) expects China to see rapid lending growth in 2023, as regulators push for banks to help keep the economy afloat with robust credit extension.
In an interview with National Business Daily, Lian said that monetary policy will remain comparatively loose this year in order to create conditions for ample credit extension.
“In 2023, the situation at home and abroad is still relatively complex, and the downward pressure on China’s economy still persist. Against this background, the basic pattern of stable and loose monetary policy should not change,” Lian said.
Lian expects further cuts to the reserve requirement ratio (RRR) later in the year in order to unleash longer term liquidity into the banking system.
“By means of monetary policy operations such as repos, MLF, and RRR cuts, the amount of base money will be moderately adjusted, but regulators will insist on not engaging in ‘flood irrigation’ in order to maintain the basic stability of prices.
“Taking the RRR cut as an example, in 2022, the central bank cut the RRR twice by 0.25 percentage points, providing long-term liquidity of over 1 trillion yuan. At present, China’s weighted average deposit reserve ratio is 7.8%, which is still a long way from the historical bottom of 6%.
“Overall, the banking system at present has ample liquidity, and there is little demand for cuts to the RRR in the first half of the year. Taking into account factors such as economic recovery, accelerated credit supply, and capital market recovery, liquidity may need to be supplemented as appropriate, so the deposit reserve ratio may be lowered twice in 2023, each time by 0.25 percentage points, for a total of 0.5 percentage points.
“This will release mid-to-long-term liquidity and further ease the pressure on financial institutions when it comes to capital costs.”
Lian also anticipates that the Chinese central bank will drive further declines to interest rates via the policy interest rates of its open market operation tools.
“Market interest rates are expected to continue to steadily decline. The central bank has lowered the loan prime rate (LPR) by moderately lowering policy interest rates, thus driving a reasonable reduction in market financing costs while focusing on expansion the medium and long-term credit demand of enterprises and residents.
“Although it may only be possible to reduce the policy interest rates and LPR to a limited extent compared to prior to the recent round of multiple cuts, their marginal effects will still be more pronounced.”
He also foresees the maintenance of “targeted” monetary policy operations by the Chinese central bank that will channel funds to designated parts of the economy.
“Monetary policy will focus more on key areas and weak links, and increase the precision of financial adjustments,” Lian said. “By means of structural monetary policy tools such as re-loans for supporting agriculture and small businesses, special re-loans for scientific and technological innovation, and carbon emission reduction support tools, financial institutions will receive active guidance in increasing support for agriculture, rural areas, micro-and-small enterprises, technological innovation, advanced manufacturing, and green development.
“At the same time, [regulators] will maintain large credit quotas for policy banks, and continue to use policy development financial instruments to accelerate the implementation of key infrastructure projects.”
For these reasons Lian anticipates ongoing rapid growth bank lending in 2023.
“We predict that bank credit will continue to grow rapidly in 2023, and the annual increase may be around 24 trillion yuan, for an expansion of more than 2.6 trillion yuan compared to the same period last year. The loan balance could increase be around 11.2%.
“Total social financing (TSF) could be 35 trillion yuan, for an expansion of 3 trillion yuan compared to the same period last year, and the growth of outstanding TSF may be around 10.2%. The M2 growth rate is expected to fall back to the range of 10.6% to 11.0%.”