China’s Credit Growth Slows as Foreign Reserves Jump
Aggregate financing was 1.23 trillion yuan ($204 billion), the People’s Bank of China said today in Beijing. That compared with 1.63 trillion yuan a year earlier. China’s foreign-exchange reserves, the world’s largest, rose to a record $3.82 trillion at the end of December from September’s $3.66 trillion.
A record decline in new credit in the second half signals limits on the pace of economic expansion this year as policy makers focus on controlling financial risks and implementing the broadest reforms since the 1990s. The jump in reserves highlights China’s challenge in coping with capital inflows while trying to reduce intervention in the currency.
“The picture going forward is for a slowdown in credit growth,” said Yao Wei, China economist at Societe Generale SA in Hong Kong. “The central bank has been intervening on a very large scale -- there’s obviously immense pressure for the yuan to rise,” she said, commenting on the larger currency reserves.
New yuan loans were 482.5 billion yuan in December and M2 money supply rose 13.6 percent from a year earlier, the central bank said.
Analysts surveyed by Bloomberg projected aggregate financing of 1.14 trillion yuan, new local-currency loans of 570 billion yuan and money-supply growth of 13.9 percent, based on median estimates.
The benchmark Shanghai Composite Index (SHCOMP) of stocks fell 0.2 percent, the fifth drop in six days. The yuan weakened 0.08 percent to 6.0460 per dollar as of 3:06 p.m. local time, heading for the biggest decline since November.
The drop in new credit underscores China’s willingness to accept slower economic growth as the government rebalances the economy away from debt-fueled investment in favor of consumption. At least nine Chinese provinces have set lower growth targets for 2014, state media and official websites showed this week and over the past month.
Hebei, which borders Beijing in the north, set an 8 percent growth goal amid “unprecedented pressure” from air-pollution controls, according to an annual work report published yesterday in the official Hebei Daily. Last year’s target was 9 percent.
The banking regulator last week told lenders to publish data including off-balance-sheet assets and interbank liabilities. Separately, the State Council, or cabinet, imposed new controls on shadow banking with an order that targets off-the-books loans and shores up enforcement of current rules, three people familiar with the matter said last week.
For the second half, aggregate financing totaled about 7.14 trillion yuan, a decline of 851 billion yuan from a year earlier, based on data compiled by Bloomberg. That’s the biggest half-year drop in figures dating to 2002.
Monetary policy won’t be too relaxed or too tight this year, Sheng Songcheng, the central bank’s statistics chief, said at a press briefing today in Beijing. The PBOC is enhancing analysis of shadow banking and will guide it to serve the broader economy, Sheng said.
The December figures helped the PBOC come closer to meeting a 2013 goal for a 13 percent increase in money supply. “It’s OK to say that we have basically met the targets,” Sheng said, also referring to limiting new local-currency loans within 9 trillion yuan. The 2013 total was 8.89 trillion yuan.
The latest data reflect a government crackdown on shadow banking and limits on interbank lending, suggesting that growth early this year “could be a bit lower,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong.
New yuan loans accounted for a record-low 51.4 percent of aggregate financing for the year, down from about 52 percent in 2012. That indicates greater shadow banking, justifying the State Council’s move to intensify regulation, said Xie Dongming, a Singapore-based economist at Oversea-Chinese Banking Corp.
Foreign-exchange holdings rose about $157 billion from the previous quarter, the second-biggest increase in the past two years, even after PBOC Deputy Governor Yi Gang said in November that it’s no longer in China’s interest to accumulate reserves, as the “marginal cost” has exceeded the “marginal gains.”
For the full year, reserves rose about $508 billion, a record in terms of volume, though the 15 percent gain was slower than every year from 2001 to 2010.
The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range, Governor Zhou Xiaochuan wrote in an article published after a Communist Party summit in November.
Authorities are dealing with “very high” capital inflows, said Wang Tao, chief China economist at UBS AG in Hong Kong. Chinese companies have increased funding from abroad to take advantage of low interest rates, with “steady appreciation” in the yuan making the practice even more attractive, Wang said.
China’s foreign-exchange reserves will rise rapidly in 2014 and the yuan will continue to appreciate against the dollar, Chen Bingcai, a former official with the State Administration of Foreign Exchange and a researcher with the Chinese Academy of Governance, said in a phone interview.
U.S. data show China’s holdings of Treasuries rose to $1.3 trillion in October.
China’s statistics bureau releases data on fourth-quarter gross domestic product on Jan. 20, along with December figures on industrial production and retail sales and full-year fixed-asset investment. Growth probably slowed to 7.6 percent from 7.8 percent in the July-September period, based on the median estimate of 34 analysts surveyed by Bloomberg News.
Today’s figures showed that while the government’s “policy of tight liquidity is bearing fruit,” any slowdown in capital spending and growth “will not be overly dramatic,” as aggregate financing in December exceeded analyst estimates, said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong.
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