Modest Policy Easing Expected Despite Feeble Recovery
New bank lending in China experienced a smaller-than-expected increase in November, signaling a feeble recovery in the country’s second-largest economy. Despite the central bank’s accommodative policies, Chinese banks extended 1.09 trillion yuan ($151.73 billion) in new yuan loans last month, falling short of analysts’ expectations. This figure is up from October’s 738.4 billion yuan and lower than the 1.21 trillion yuan in new loans issued in November last year. Analysts predict that the People’s Bank of China (PBOC) will implement more moderate policy easing in the next few weeks to support the economic recovery in 2024.
Underwhelming Credit Growth and Household Loans
The increase in broad credit growth for November failed to meet expectations, partly due to a pickup in government bond issuance. Capital Economics noted that weak credit growth was a result of these factors. Meanwhile, household loans, including mortgages, grew by 292.5 billion yuan in November, compared to a contraction of 34.6 billion yuan in October. This growth in household loans reflects the impact of weak consumer confidence caused by a deepening property crisis and high unemployment.
Monetary Policy and Support Measures
Wen Bin, chief economist at Minsheng Bank, suggested that cutting the reserve requirement ratio and interest rates could stabilize liquidity in the banking system and reduce financing costs. The central bank chief, Pan Gongsheng, has pledged to maintain accommodative monetary policy to support the post-pandemic recovery. However, he also emphasized the need for structural reforms to decrease reliance on infrastructure and property for growth. To stimulate the economic recovery, fiscal policy will be moderately strengthened, according to the Politburo. The PBOC has already implemented measures such as interest rate cuts and increased cash injection, in contrast to other major economies that have tightened policy to combat inflation.
Money Supply and Total Social Financing
Central bank data showed that broad M2 money supply in November rose by 10.0% from the previous year, falling short of forecasted growth. Outstanding yuan loans increased by 10.8% in November compared to the previous year. This growth rate was slightly lower than October’s 10.9% increase. The annual growth rate of outstanding total social financing (TSF), which includes off-balance sheet forms of financing, quickened to 9.4% in November, up from 9.3% in October. Despite this growth in TSF, the figure for November was lower than October’s 2.45 trillion yuan.