China’s credit expanded at a slower-than-expected pace in December as Covid disruptions and a turbulent bond market weighed on borrowing activity.
(Bloomberg) — China’s credit expanded at a slower-than-expected pace in December as Covid disruptions and a turbulent bond market weighed on borrowing activity.
Aggregate financing, a broad measure of credit, was 1.31 trillion yuan ($193 billion) last month, the People’s Bank of China said Tuesday. That was below the median estimate of 1.85 trillion yuan in a Bloomberg survey of economists and compares with 2.4 trillion yuan in the same month a year ago.
New loans for all borrowers including non-bank financial institutions reached 1.4 trillion yuan in the month, better than a projection among economists of 1.2 trillion yuan. Growth in the broad M2 measure of money supply slowed to 11.8% from 12.4%.
China abruptly abandoned its Covid Zero strategy in the last few weeks of 2022. As infections spread, many major cities in the country experienced a slump in activity with people staying home due to illness or fear of being infected.
“The genuine credit demand remains sluggish due to the Covid impact,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd. Demand for funding was also undermined by sell-offs of wealth management products, he said.
Net corporate bond issuance fell about 270 billion yuan, based on Bloomberg calculations, the first contraction since May 2021. The growth rate of the stock of credit slowed to 9.6%, a record low since comparable data began in 2017.
Market appetite for note issuance appeared to remain weak last month, as heavy redemptions by retail investors prompted financial product managers to slash their holdings. Expectations of a growth rebound following the Covid Zero policy shift also reduced the appeal of China’s sovereign debt.
New mid- and long-term household loans, a proxy for mortgages, was 182 billion yuan in December, down from 210 billion yuan in November, suggesting homebuyers remained cautious.
However, new mid- and long-term lending provided to companies rose to 1.21 trillion yuan from 737 billion yuan in November, and almost quadruple the amount a year ago. That’s likely boosted by demand from infrastructure investment and the property sector, after the government in recent months ramped up support for developers to access financing.
In a meeting with major banks Tuesday, the central bank and the banking and insurance regulator urged lenders to prevent risks at leading and quality developers, and to help execute plans to improve their balance sheets.
The plans include developing assets, extending debt and providing more equity financing for systemically important developers that are focused on their core business and have good qualifications. Bloomberg reported last week on support measures for the strongest and too-big-fail developers as the property downturn persists.
“The market has a low expectation as the virus resurgence should have dampened the credit activities,” said Zhou Hao, chief economist at Guotai Junan International Holdings. “As the news loans came in higher than expected in December, there’s a big hope of massive loan extension at the beginning of 2023, further boosting the growth prospects.”
The PBOC has refrained from taking significant easing steps since it reduced the amount of cash banks must keep in reserve toward the end of the year. Officials have recently said monetary stimulus in 2023 will be at least as strong as last year, and policy will be focused on supporting domestic demand. Economists expect the PBOC to keep monetary policy loose for at least the next few months to help the economy recover.
The Covid surge, meanwhile, appears to be abating at least for some urban areas. Subway passengers in big cities started to rebound at the end of December, while millions of Chinese are beginning to travel around the country as the nation’s key holiday season kicks off.
–With assistance from April Ma.
(Updates with central bank meeting in 10th and 11th paragraphs.)
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