China credit growth slows more than expected despite easing

Bloomberg

China’s credit expansion slowed as a long holiday and the slumping housing market meant people and companies borrowed less, raising expectations that the central bank will need to do more to support growth.
Banks lent 1.2 trillion yuan ($194 billion) in the month, down from 4 trillion yuan in January and less than in February last year, the People’s Bank of China said on Friday. A key indicator of home mortgages declined for the first time in at least 15 years despite efforts by the central bank and other financial institutions to boost borrowing by cutting rates and lowering down payments.
“It’s a pretty bad set of data,” said Zhou Hao, senior emerging markets economist at Commerzbank AG. “There’s a lack of growth driver, and the real economy’s demand is weak,” he said, arguing that “the PBOC will have to cut rates early if it wants to do so” as inflation and capital outflow pressures will start to limit its space later in the year, he said.
The data underscores the challenge for China to achieve its target of around 5.5% growth this year, with the property market slumping, coronavirus infections rapidly increasing, inflation still high and export demand threatened by the effects of the war in Europe. Premier Li Keqiang told reporters that China would “step up macro economic policies” this year as achieving the growth goal won’t be easy.
Expectations could be shifting for the PBOC’s upcoming rate decision Tuesday, when it will conduct its regular medium-term lending facility operations. A majority of the economists polled by Bloomberg had expected no change in the interest rate of the one-year policy loan, after the PBOC lowered it in January.
If there’s no decision by next week to increase the amount of bank reserves that can be lent out, the PBOC may cut the interest rate on MLF loans by 5 basis points, according to Liu Peiqian, chief China economist at NatWest Group Plc.
Many cities have eased mortgage restrictions and lowered home loan rates to stimulate property demand. Despite that, medium and long-term loans to households, which are a proxy for mortgages, fell for the first time in at least 15 years, dropping by 49.5 billion yuan in February from January.
The stock of outstanding credit grew 10.2% to 321 trillion yuan, weakening from the 10.5% expansion in January and the first slowdown since September. Broad M2 money supply grew 9.2%, down from 9.8% in January.
China’s limp credit expansion in February reinforces our view that the People’s Bank of China needs to — and will — loosen policy further to shore up the economy.
Corporate lending bucking seasonal weakness reflected the central bank’s efforts to boost stimulus. But an undershoot in aggregate social financing relative to expectations underlined slack credit in other areas —shadow banking and mortgage loans.
The yield on 10-year Chinese government bonds extended their decline after the credit data was released, dropping due to expectations that the weak data means a higher chance of further central bank action. Futures contracts on the same tenor rose as much as 0.6%, the most since May 2022.
The weak data came despite provinces selling special bonds — a key source of infrastructure funding —at a faster pace in February than in previous years. Newly increased medium and long-term loans to non-financial companies fell to 505 billion from 1.1 trillion yuan a year ago, indicating companies were also reluctant to borrow and invest.