Apr 9 2024: A Reuters poll indicates that China’s new yuan loans are anticipated to bounce back in March following a significant drop in February, as the central bank aims to strengthen economic growth amid expectations of further stimulus measures in the coming months.
According to the survey of 22 economists, Chinese banks are projected to have issued 3.56 trillion yuan ($492.11 billion) in net new yuan loans last month, more than double the 1.45 trillion yuan issued in February. However, this figure would still be lower than the 3.89 trillion yuan issued in March last year.
Following a record credit expansion in January, new lending saw a decline in February. If March’s figures align with expectations, total lending in the first quarter would amount to 9.93 trillion yuan, compared to the record of 10.6 trillion yuan in the first quarter of the previous year.
Analysts at UBS noted that banks likely continued to provide credit support to the real economy, recovering from the notable weakness seen in February. They also suggested that the boost from loans to non-bank financial institutions (NBFIs) may have narrowed compared to February.
In February, new lending to NBFIs, including brokerages and funds, surged significantly, raising speculation that these loans were used to support the struggling stock market.
Despite the rebound in new yuan loans, most analysts believe that the central bank will stick to conventional tools rather than implementing massive liquidity injections through “quantitative easing” (QE), similar to actions taken by major economies like Japan and the United States.
China’s economic growth target for 2024 is around 5%, a goal that many analysts believe will be challenging to achieve without additional stimulus. Consumer and corporate confidence has remained weak since the initial post-pandemic recovery in early 2023.
Deputy Governor Xuan Changneng of China’s central bank mentioned in late March that there is still room for cutting banks’ reserve requirement ratio (RRR) following a 50-basis point reduction earlier this year, which was the largest in two years.
China has committed to aligning the growth of total social financing (TSF) and money supply with expected goals for economic growth and inflation in 2024. Outstanding yuan loans in March are expected to grow by 9.9% year-on-year, with broad M2 money supply growth remaining stable at 8.7%.
The issuance of local government special bonds and special ultra-long-term treasury bonds is also part of China’s plan to support key sectors and potentially boost TSF. Outstanding TSF grew slower in February than in January, but it is expected to surge in March, indicating increased financial support measures.
