Feb 7, 2024: BEIJING (Reuters) – China’s new yuan loans are anticipated to experience a significant surge in January compared to the previous month, as the central bank takes measures to bolster the uneven recovery in the world’s second-largest economy.
Typically, Chinese lenders front-load loans at the start of the year to attract high-quality customers and expand their market share.
According to a survey of 24 economists, banks are projected to have issued 4.50 trillion yuan ($626.02 billion) in net new yuan loans last month, marking a substantial increase from the 1.17 trillion yuan recorded in December.
While this figure is lower than the record 4.9 trillion yuan issued in the same month a year earlier, analysts suggest that banks are likely to continue providing credit support to the real economy. This strategy involves issuing bank loans swiftly to secure more revenue, despite the People’s Bank of China (PBOC) calling for a ‘smoother’ pace of credit growth in early 2024.
Furthermore, analysts believe that continued debt swaps involving local government financing vehicles (LGFVs) using special refinancing local government bonds from 2023 may have led to a reduction in existing bank loans, corporate bonds, and shadow credit.
The release of January data on bank loans, money supply, and total social finance (TSF) is expected to be delayed due to the Lunar New Year holiday from Feb. 10-17. In 2023, China’s new bank lending reached a record 22.75 trillion yuan, surpassing the previous year’s record of 21.31 trillion yuan.
Despite economic growth of 5.2% in 2023, slightly exceeding the official target, the recovery has been less robust than anticipated. To support growth, the central bank recently implemented a 50-basis point reduction in the reserve requirement ratio (RRR) for banks, releasing 1 trillion yuan in long-term liquidity.
Analysts predict that annual outstanding yuan loans will grow by 10.4% in January, compared to 10.6% in December. Additionally, broad M2 money supply growth is anticipated to be 9.3% in January, down from 9.7% in December.
Local governments in China issued a net total of 3.96 trillion yuan in special bonds in 2023, surpassing the annual quota, with the aim of stimulating investment and supporting the economy. Any increase in government bond issuance could contribute to a rise in TSF, a broad measure of credit and liquidity. Outstanding TSF increased by 9.5% at the end of December compared to 9.4% at the end of November. In January, TSF is expected to increase to 5.55 trillion yuan, up from 1.94 trillion yuan in December.
