China’s New Yuan Loans Surge Ahead of Today’s GDP Report
China’s new yuan loans were the most in a year and money-supply growth unexpectedly accelerated after Premier Wen Jiabao moved to bolster the economy by cutting banks’ required reserves and helping small companies get funding.
Local-currency-denominated loans were 1.01 trillion yuan ($160.1 billion) in March, the People’s Bank of China said yesterday, the biggest surprise above forecasts in more than a year. M2, the broadest measure of money supply, grew 13.4 percent from a year earlier. China’s foreign-exchange reserves, the world’s largest, rose to a record $3.31 trillion as of March 31 after dropping for the first time in more than a decade in the fourth quarter.
The report may reassure investors that the nation will avoid a deeper slowdown in economic growth. Government data due today are set to show gross domestic product probably expanded 8.4 percent in the three months ended March 31, the least in 11 quarters.
“Policy makers have taken preemptive measures to ensure the growth slowdown doesn’t become excessive,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “The message for the rest of the world is China will not have a hard landing and will generate demand for your exports.”
The government will keep easing liquidity via a reduction of 50 basis points this month in the portion of deposits banks must put aside as reserves, Kowalczyk said.
The MSCI Asia Pacific Index of stocks extended gains following the report, rising 0.7 percent yesterday. China’s benchmark Shanghai Composite Index closed up 1.8 percent before the data were released at about 4 p.m. local time.
China is easing restrictions on lending capacity at three of the nation’s four biggest banks, officials at the institutions with knowledge of the matter said last month, after new local-currency-denominated credit fell to the lowest level for a January-February period since 2008. The central bank has also cut reserve requirements for more branches of the nation’s third-biggest lender to boost rural credit.
March’s new yuan lending was 21 percent above the median estimate of 797.5 billion yuan from 28 economists in a Bloomberg survey and compares with 710.7 billion yuan in February. That’s the widest deviation from forecasts since December 2010.
Loans were the highest since January 2011. Money supply was forecast to grow 13 percent. Foreign-exchange reserves rose from $3.18 trillion at the end of December and compared with the median economist estimate of $3.20 trillion.
The increase in foreign-currency holdings shows a “reversal of capital flight,” Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong, said in a note. The “unexplained inflow” after accounting for items including currency fluctuations and trade is about $30 billion out of the $124 billion quarterly increase, Lu said.
New local-currency loans for the first quarter were 2.46 trillion yuan, up 9.7 percent from a year earlier. New yuan deposits were 2.95 trillion yuan in March, up 10 percent from last year.
The “strong” data for loans and money supply “reinforce our view that the economy has bottomed” in the first quarter, said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. The lending figures suggest the pressure to cut interest rates “may have eased somewhat,” Zhang said.
Not all parts of yesterday’s report showed growth. Aggregate financing, a measure of funding that includes bank lending, bond and stock sales, was 3.88 trillion yuan in the first quarter, down 8 percent from the same period last year.
China this week reported an unexpected trade surplus for March as import growth trailed estimates while inflation rose a more-than-forecast 3.6 percent last month as gains in food prices quickened.
Industrial companies had their first January-February profit decline since 2009, a report last month showed, while the nation’s largest copper producer, Jiangxi Copper Co. (358), and Air China Ltd., the No. 1 airline, announced earnings that trailed analysts’ estimates.
Wen pledged during a visit to Fujian and Guangxi provinces to boost funding for investment projects already under construction, start major state projects and ensure lending to smaller businesses, the official Xinhua news agency and China National Radio reported April 3.
“The March lending reflects the policy easing and support that have been in the works since the beginning of this year,” said Wang Tao, chief China economist with UBS AG in Hong Kong, whose forecast for 900 billion yuan in loans was among the top three estimates. “Markets were looking for more policy easing, but prior easing was already working.”
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