Chinese Financial Data Ahead of Expectations in March, Concerns Persist over Consumer Spending

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The latest round of official data released by the Chinese central bank points to robust credit extension in March, with retail lending coming in especially strong.

According to data released by the People’s Bank of China (PBOC) on 11 April, renminbi loans increased by 3.89 trillion in March, for an expansion of 749.7 billion yuan compared to the same period last year. In the first quarter, new renminbi loans reached a record high of 10.6 trillion yuan, for an increase of 2.27 trillion compared to the same period last year.

In March total social financing was 5.38 trillion yuan, 707.9 billion yuan ahead of the same period last year. In the first quarter of 2023 total social financing hit a record high of 14.53 trillion yuan, 2.47 trillion yuan more than the same period last year.

As the end of March, the broad money supply (M2) balance was 281.46 trillion yuan, for a year-on-year (YoY) increase of 12.7%. This growth rate was 0.2 percentage points lower than the end of the previous month, but 3 percentage points higher than the same period last year.

Domestic analysts have hailed the data as presaging a broad recovery in the Chinese economy, following the roll back of Covid-related movement restrictions that were reimposed across various parts of the country in 2022.

“Overall, the financial data for March was impressive, with broad money (M2) continuing to grow at a rapid pace, and the growth of total social financing scale and renminbi loans coming in strong and exceeding expectations,” said Dong Ximiao (董希淼), chief researcher at Zhongtai Securities.

“This indicates that with the effects of the stable growth and development policies becoming apparent, market confidence has been significantly boosted, and the demand for effective financing has accelerated, making the macroeconomic recovery more solid,”

Dong Ximiao pointed in particular to a rapid recovery in the effective demand for credit from Chinese households. In March, household loans increased by 1.24 trillion yuan, well ahead of the prints of 257.2 billion yuan for January and 208.1 billion yuan for February.

This included an increase of 609.4 billion yuan in short-term loans and 634.8 billion yuan in medium-to-long-term loans o households, consistent with the recent rebound in the real estate market and the recovery of the consumer market.

“This indicates that as the macroeconomy continues to improve, work and income is stabilising for household, and confidence and expectations are clearly recovering. Investment and consumption demand are display a trend of recovery.

Wen Bin (温彬), chief economist at China Minsheng Bank, highlighted structural improvements to credit extension following the sizeable increase in retail lending.

“On the one hand, the share of retail loans in new credit in March has increased significantly, optimizing the serious imbalance between corporate and retail loans since last year; on the other hand, under the guidance of regulation and the balance of economic recovery, credit allocation between regions is more balanced, while the differentiation of credit between institutions is also narrowing.”

Wang Qing (王青), at Golden Credit Rating, said lending by banks to China’s real economy accounted for much of the record high in total social financing in March.

“The main drivers of the March increase in total social financing were renminbi loans to the real economy and off-balance sheet financing. Government and corporate bond financing in the same month were slightly less than the same period last year, with the structure of total social financing displaying the characteristics of ‘strong credit and weak bonds,'” he said.

Liang Si (梁斯), researcher at the Bank of China Research Institute, said credit demand from the real economy will continue to be strong in the second quarter as the Chinese economy stabilizes and improves, which will drive improvements to financial data.

Liang highlighted concerns over weak consumer demand, and the need to optimise policy measures to effectively boost consumer spending in order to accelerate economic recovery.