China’s New Credit Drops to 1.15 Trillion Yuan

(Beijing) — China’s broadest measure of new credit dropped in February from a record high a month earlier mainly because of intensified regulation over shadow banking and bond-market instability.

Total social financing (TSF) — which includes conventional bank lending and other forms of financing such as bond and equity issuance, trust loans and entrusted loans — dropped to 1.15 trillion yuan ($166.3 billion) in February from a record 3.74 trillion yuan in January, according to data released Thursday by the People’s Bank of China (PBOC).

One of the main factors of the decline was the dramatic drop in shadow-banking financing. In February, net capital raised through these channels, including trust loans, entrusted loans and undiscounted bankers acceptances, was 51.6 billion yuan, according to central bank data. In January, shadow-banking fundraising was 1.2 trillion yuan.

The drop in shadow-banking financing was mainly due to the stepped-up efforts by regulators to control the general credit risk exposures off-balance-sheet assets, said Wen Bin, chief researcher at China Minsheng Bank.

Wen also suggested that the higher yields and volatility in the bond market caused many companies to halt raising capital through bond issues. Data from the central bank revealed that net new corporate bond issuance continued to fall, dropping by 107.3 billion yuan in February. A month earlier, funds raised by corporate bonds fell by 53.9 billion yuan.

New bank loans dropped to 1.17 trillion yuan, down sharply from 2.03 trillion yuan a month earlier, said the central bank. Still, the figure exceeded market expectations of 990 billion yuan, according to a survey on economists and financial institutions conducted by Caixin.

Medium- and long-term loans to companies, money used mainly for long-term investments, were 20% higher than a year earlier at 601.8 billion yuan, indicating a stronger impetus for spending among corporations. But Liu Liang, senior analyst in asset management department of China Merchants Bank, said that the momentum of financing may not be sustained, as some companies have slowed the cycle of replenishing their inventory.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)