China’s New Credit Declines

China’s broadest measure of new credit fell last month as authorities extended their campaign to tame financial dangers even as construction and manufacturing data point to risks that the economy’s slowdown will worsen.

Aggregate financing was 1.55 trillion yuan ($249 billion) in April, the People’s Bank of China said yesterday in Beijing, compared with 2.07 trillion yuan in March. New local-currency bank loans were 774.7 billion yuan, down from 1.05 trillion yuan the previous month.

The figures add to signs that officials are reluctant to heed calls for monetary stimulus, with President Xi Jinping saying in remarks published May 10 that the nation needs to stay “cool-minded” amid what analysts forecast will be the weakest annual growth since 1990. PBOC Deputy Governor Liu Shiyu said the same day that shadow banking threatens to undermine the financial system, as policy makers try to rein in credit.

“In the face of calls for stimulus, China’s government appears comfortable with a continued slowdown in credit growth,” Mark Williams, chief Asia economist at Capital Economics Ltd. in London, said in a note. “The government’s composure so far is an encouraging sign that policy makers are still giving priority to bringing credit risks under control,” said Williams, a former U.K. Treasury adviser on China.

The statistics bureau is scheduled to publish April industrial production and retail sales data and January-April fixed-asset investment data today.

Median Estimates

Aggregate financing compared with the median estimate of 1.48 trillion yuan in a Bloomberg News survey of economists, and the median projection for new yuan loans was 800 billion yuan. M2, the broadest gauge of money supply, rose 13.2 percent from a year earlier, after record-low growth of 12.1 percent in March.

Almost half of the economists surveyed by Bloomberg News last month predicted a cut this year in banks’ reserve requirement ratio, which would be the first since May 2012, to support expansion. Expectations for a reduction increased after a government report last week showed consumer inflation moderated to an 18-month low and the decline in factory-gate prices persisted.

A property-market slowdown, including last quarter’s 25 percent plunge in new-building construction, threatens to intensify a slowdown and add pressure on Premier Li Keqiang to boost stimulus to meet an expansion goal of about 7.5 percent this year. China’s manufacturing contracted for a fourth month in April, according to a survey by HSBC Holdings Plc and Markit Economics.

Failure Plans

The government is drafting rules to help manage the fallout of any bank failure, two people with knowledge of the matter said, as lenders in the country face rising loan defaults and increased competition, Bloomberg News reported yesterday. The plan would ensure the safety of deposits and an orderly repayment of financial firms’ liabilities during a crisis, the people said, asking not to be identified because the draft rules haven’t been made public.

PBOC official Liu, speaking at a conference in Beijing on May 10, called for tougher rules to control an industry that he said has driven up borrowing costs and done little to support the economy and productivity. Shadow finance creates a “gambling” mindset, with funds channeled into short-term investments where returns are more lucrative, he said.

The PBOC figures showed declines in sub-gauges associated with shadow banking, such as entrusted loans, and an increase in corporate bonds to 366.3 billion yuan, up almost 50 percent from March.

No ‘Squeeze’

Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong, said “there is no need to worry about a credit squeeze.” Barclays Plc analysts led by Chang Jian, chief China economist in Hong Kong, said the data point to improved growth, suggesting “financing channels remain open to investments.”

President Xi said the nation needs to adapt to a “new normal” in the pace of economic growth, according to a Xinhua News Agency report on the central government website on May 10. At the same time, the government must prevent risks and take “timely countermeasures to reduce potential negative effects,” Xi said.

Premier Li, in a May 8 speech in Nigeria, reiterated that China has the confidence and capability to achieve this year’s economic-growth goal and maintain medium- to high-speed growth in the long run. Analysts forecast expansion of 7.3 percent in 2014, which would be the slowest in 24 years, based on the median estimate in a Bloomberg survey in April.

“Credit conditions are still too tight to accommodate a meaningful rebound in growth,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “As shadow-banking activities are shrinking, the central bank has to do more to boost bank credit.”

— With assistance by Scott Lanman, and Xin Zhou

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