Credit Growth Rebounds on Stronger Corporate Borrowing

China’s credit growth rebounded in November after an October slump as banks stepped up lending to fund infrastructure spending and government debt swaps. But M2 growth weakened below expectations.

Total social financing (TSF), a broad measure of credit and liquidity in the economy, grew faster than expected, by a net 1.75 trillion yuan ($249 billion) in November, according to data released Tuesday by the central bank. That compares with about 619 billion yuan in October and 1.6 trillion yuan in November 2018. A median estimate of economists was 1.59 trillion yuan, according to a Caixin survey of 23 domestic and foreign institutions.

Banks issued 1.39 trillion yuan of new loans in November, more than double the previous month’s 661.3 billion yuan and higher than the survey estimate of 1.25 trillion yuan. Outstanding yuan loans grew 12.4% from a year earlier, unchanged from the October gain.

The credit rebound followed a series of easing measures in November, including cuts in two key policy rates for bank borrowings. Regulators have also repeatedly urged financial institutions to step up lending to support the economy.

A breakdown of the loan data shows that growth in loans outstanding to companies increased. Businesses borrowed 679.4 billion yuan in the month, up 103 billion yuan from a year earlier.

The expansion of corporate lending reflected banks’ increased efforts to fund infrastructure projects in response to government calls, analysts said. A report by China Minsheng Bank projected improving mid- and long-term credit conditions for infrastructure and manufacturing projects amid easing policies and the regulatory push. Citic Securities said mid- and long-term loans for corporations are reviving on the back of accelerating infrastructure investments.

Zhang Jiqiang, deputy research head of Huatai Securities, said the increase in corporate lending also reflects local governments’ ongoing efforts to swaps debts with their implicit guarantee for bank loans to defuse debt risks.

Household borrowing grew by 683.1 billion yuan in November, an increase of 27.1 billion yuan from a year earlier. Net growth of mid- and long-term household loans — mainly mortgages — increased by 29.8 billion yuan from a year ago, reflecting last month’s cut to the five-year loan prime rate (LPR) — against which mortgages are priced.

Growth of bill financing declined 171.7 billion yuan in November, partly because of regulators’ crackdown on fake trade financing, said Zhong Linnan, chief fixed-income analyst at Lianxu Securities. Meanwhile, off-balance sheet financing continued contracting.

New corporate bond issuance declined by 122.2 billion yuan in November to 269.6 billion yuan.

Despite the higher-than-expected new credit data, the growth of M2, a broad measurement of money supply, moderated to 8.2% year-on-year in November from 8.4% in October, weaker than market expectations.

“Why the divergence between loan growth and M2 growth? A simple answer is that borrowers’ interest payment is also borrowed,” said Lu Ting, chief China economist at Nomura International, in a research note. “This is not a very good sign.”

Analysts said the November rebound could be highly seasonal following the normally low season in October and further policy easing is needed to bolster the economy.

The underwhelming impact of recent monetary easing on credit growth suggests that more-aggressive policy actions may be needed, said Julian Evans-Pritchard, senior China economist at Capital Economics, in a research note. Evans-Pritchard said he expected the central bank may push down the LPR by a further 70 basis points, or 0.7 of a percentage point, in coming quarters.

But policy easing space could be quite limited for Beijing, Nomura said in a note. Amid concerns over rising inflation expectations, the central bank may prefer low-profile easing measures in the near term, such as rolling over its maturing medium-term lending facility (MLF) and targeted MLF (TMLF) and offering additional liquidity via such lending facilities, Nomura said.

China’s consumer inflation soared to an eight-year high in November at 4.5% year-on-year, mainly fueled by rising pork prices.

A blanket reserve requirement ratio cut may come around spring 2020, when headline CPI inflation is likely to have passed its peak, Nomura said. Credit growth will rise in 2020, but the upside should be moderate because of Beijing’s limited policy room, it said.

Contact reporter Han Wei (weihan@caixin.com)

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