China Credit Growth Trails Estimates

China’s credit growth trailed analysts’ estimates in February, signaling a shadow-banking slowdown following a trust investment product’s near default.

Aggregate financing was 938.7 billion yuan ($153 billion), the People’s Bank of China said yesterday in Beijing, less than the 1.31 trillion yuan median estimate of analysts surveyed by Bloomberg News. New local-currency loans were 644.5 billion yuan, accounting for about 69 percent of aggregate credit, the largest proportion since July.

Reining in a $6 trillion shadow-banking industry would help reduce risks of financial turmoil while putting more pressure on growth after exports plunged and producer-price deflation deepened last month. Former central bank adviser Li Daokui says the government will take steps to support expansion that he projects will slow next quarter below a 7.5 percent target for the year.

“Off-balance sheet activity has been curtailed and been contained,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. “The policy stance is very obviously less accommodative than the first half of last year. Under those macro policies, we think it would be quite challenging to achieve 7.5 percent GDP growth.”

Zhou Briefing

People’s Bank of China Governor Zhou Xiaochuan may elaborate on the central bank’s policy in a briefing today in Beijing with other Chinese financial regulators as part of the annual meeting of the National People’s Congress.

The lending figures were released after the close of China’s stock market. The benchmark Shanghai Composite Index fell 2.9 percent yesterday, the most since June, after figures on foreign trade and producer prices released over the previous two days. The yuan dropped 0.17 percent to close at 6.1385 per dollar in Shanghai, having earlier lost as much as 0.51 percent, after the central bank cut the reference rate by 0.18 percent, the most since 2012.

China’s benchmark interest rate for short-term interbank financing fell to a 21-month low yesterday on speculation demand for cash is weakening as growth slows. The seven-day repurchase rate dropped three basis points, or 0.03 percentage point, to 2.37 percent, according to a fixing compiled by the National Interbank Funding Center.

Li, a former academic adviser to the central bank, said China’s growth will hit bottom at 7.4 percent in the second quarter, spurring the government to take steps such as allowing more private investment projects. Authorities may also make the supply of funds “less tight,” Li said in an interview yesterday in Beijing ahead of the lending data.

Money Supply

M2, the broadest gauge of money supply, rose 13.3 percent from a year earlier, after January’s pace of 13.2 percent. New local-currency loans compared with the 730 billion yuan median estimate of economists and January’s 1.32 trillion yuan.

The nation in late January averted its first trust default in at least a decade as investors in a 3 billion-yuan high-yield product issued by China Credit Trust Co. were bailed out days before it matured.

In another sign of financial stress, Shanghai Chaori Solar Energy Science & Technology Co., a solar-cell maker, said March 7 it won’t be able to make an interest payment due that day in full, providing the first default in China’s onshore bond market. Chaori plans to sell assets outside the country to raise cash and repay noteholders, Vice President Liu Tielong said yesterday.

Holiday Distortions

China’s economic data in January and February are always distorted by a weeklong Lunar New Year holiday, which began on Jan. 31 this year.

Economists’ estimates for aggregate financing, which includes bank lending, corporate bond issuance and shadow-banking products like entrusted loans, ranged from 650 billion yuan to 1.57 trillion yuan. February’s figure compared with a previously reported record 2.58 trillion yuan in January.

A drop in new trust loans was “perhaps affected by the payment issues in some trusts,” Wang Tao, chief China economist at UBS AG in Hong Kong, said in an e-mail. The latest data shouldn’t “have much implication for growth and policy in the next few months” amid the holiday distortions, she said.

“I still think the government will pursue a neutral set of policies and the governnment’s growth target can be achieved,” Wang said.

New trust loans were 78.4 billion yuan in February, the lowest since October and compared with 182.5 billion yuan a year earlier.

The statistics bureau will provide data on January-February industrial production, retail sales and fixed-asset investment on March 13.

— With assistance by Kevin Hamlin

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