Chinese Lending Still Heavily Dominated by Enterprises as Household Demand Remains Weak

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The latest data from China’s central bank points indicates that enterprises continued to dominate credit extension in the first quarter of 2023, with households accounting for a comparatively meagre share.

Loans to enterprises and other organizations in March increased by 2.7 trillion yuan, accounting for 69.4% of the newly added renminbi loans, according to data released by the People’s Bank of China (PBOC) on 11 April. For the first quarter they increased by 8.99 trillion yuan, accounting for 84.8% of the newly added renminbi loans,

In sharp contrast, out of 10.6 trillion yuan in new loans extended in China during the first quarter, household loans totalled only 1.71 trillion yuan, accounting for a mere 16.1% share.

“It can be said that the phenomenon of ‘strong demand for corporate credit, weak demand for household credit’ has not fundamentally changed,” said Dong Ximiao (董希淼), Head of Research at Zhongtai Securities.

“The confidence and expectations of enterprises have clearly recovered, which is the key to the strong growth of loans in the first quarter, with financing demand increasing and credit issuance both accelerating

“Effective financing demand has accelerated and is rebounding, while the macroeconomic recovery has been steadily consolidated…the next step is to continue to take measures to accelerate the overall improvement of the macro economy.”

Dong also highlighted an expanding divergence between growth in the M1 and M2 money supplies, which he argues points to the effectiveness of PBOC monetary policy.

PBOC data indicates that the M2 money supply grew by 12.7% year-on-year (YoY) as of the end of March. Although this growth rate was 0.2 percentage points lower than the end of the previous month, it was still 3 percentage points higher than for the same period last year, reaching its second-highest level since mid-2016 (second only to 12.9% at the end of the previous month).

In contrast, China’s narrow M1 money supply grew by 5.1% YoY at the end of March, for a decrease of 0.7 percentage points compared to the previous month, and an increase of 0.4 percentage points year-on-year.

“The high growth rate of M2 is mainly due to the support of factors such as the rebound in demand and the implementation of reserve requirement ratio cuts, the scope of lending reaching a new high, and the front-loading of fiscal spending increasing monetary injections, which has enhanced the ability of banks to create currency,” Dong said.

“This indicates that the prudent and effective monetary policy has provided relatively abundant market liquidity, and support for the real economy by the financial sector has been significant.”