China's financial institutions issued a smaller amount of credit in the first three months of the year when compared with a year earlier, suggesting continued tepid borrowing demand from corporates and households.
Total social financing, a broader metric of credit that also includes nonbank financing, stood at 12.93 trillion yuan ($1.787 trillion) in the January-March period, down by CNY1.61 trillion from the same period last year, according to data released by the People's Bank of China on Friday. Meanwhile, new yuan loans issued by banks in China were CNY9.46 trillion in the first three months.
Calculations by The Wall Street Journal showed that China's TSF stood at CNY4.87 trillion in March while new yuan loans were at CNY3.09 trillion, missing the CNY3.5 trillion expected by economists surveyed by Journal earlier.
March has traditionally been a month of strong financing demands in China as lenders compete to win customers so that they can hit quarterly lending targets. However, economic headwinds, including a protracted property slump, have dented consumer and business confidence, leading to weaker borrowing demand.
China's M2, the broadest measurement of money supply, rose 8.3% on year in March, down from the 8.7% seen in February and expected by economists polled by The Wall Street Journal. This also marks the slowest expansion since September 2023.
Friday's weak credit data adds to the case for PBOC to trim policy rates further, economists at Capital Economics said in a note to clients. They also expect that China's fiscal loosening--decided in a March legislature session--to boost government bond issuance in the coming months, possibly pushing up the PBOC's measure of broad credit growth.
However, "Given the persistent weakness of private credit demand any pick-up will be modest and short-lived, unless the PBOC shifts to a far more aggressive approach," CE's economists said. "There is no sign of that happening - and current pressure on the renminbi makes substantial rate cuts even less likely," they added.
Beijing announced in March that it's planning to issue $139 billion of ultralong special treasury bonds this year, a crisis management tool that will now become a regular source of funding as policymakers seek to boost a faltering economy.
With the market expecting a peak of government bond issuance in the second quarter, the PBOC-affiliated newspaper Financial News said after the data release that the central bank is expected to properly use policy tools such as reverse repos operations to hedge the short-term impact of fiscal bond issuance factors.
The central bank may include trading treasury bonds in its policy toolbox in the future to better manage liquidity, according to an unnamed expert interviewed by the newspaper. The comment echoes a months-old speech by China's top leader that has stoked speculation around aggressive liquidity boosts from Beijing in recent weeks.
In remarks made in October but only published recently, Chinese President Xi Jinping called for the central bank to supplement its monetary policy toolbox and gradually step up trading of treasury bonds in its open-market operations, a policy tool the bank has rarely used in the past two decades.
Economists say U.S.-style quantitative easing, in which a central bank loads up on government bonds and other assets to push down yields, is unlikely in China, since Beijing still has relatively ample room to ease monetary policy with traditional measures, as interest rates in China are still well above zero.
PBOC's trading treasury bonds will be fundamentally different from that of central banks in Europe and the U.S., who were forced to purchase large amounts of treasury bonds after exhausting their more traditional monetary policy options, said the unnamed expert, adding that overall monetary and financial conditions in China will remain reasonable and moderate.
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(END) Dow Jones Newswires
04-12-24 1126ET
