China Credit Expansion Moderates as Policy Makers Cool Property

  • Aggregate financing fell while money supply growth picked up
  • Property tightening will bite more next month, Natixis says

China’s broadest measure of new credit moderated last month after the government rolled out new measures starting in late September to cool the property market. 

Key Points

  • Aggregate financing decreased to 896.3 billion yuan ($131 billion) in October, the People’s Bank of China said Friday, compared with a median estimate of 1 trillion yuan in a Bloomberg survey and 1.72 trillion yuan the prior month. 
  • New yuan loans edged down to 651.3 billion yuan from 1.22 trillion yuan in September
  • Broad M2 money supply rose 11.6 percent from a year earlier, up from 11.5 percent

Big Picture

Credit growth has been moderating as the economy stabilizes and policy makers turn to reining in excessive real estate price gains. Mortgage loans spurred strong credit growth this year as home prices surged in big cities, prompting officials to roll out curbs across almost two dozen cities.

Economist Takeaways

"The economy is still on track," said Iris Pang, senior economist for greater China at Natixis SA in Hong Kong. "Property tightening will bite into long-term household loans next month at the earliest, and that will lead to a further slowdown in new lending."

"In the wake of the U.S. election, the outlook for China’s credit growth is exposed to decisions made by the incoming administration of president-elect Donald Trump," Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a report. "China’s policy makers would prefer a moderate slowdown in credit growth as a down payment on deleveraging. A blow to exports from protectionist policies in the U.S. could force them into a fresh round of credit-financed stimulus."

"Monetary policy is turning gradually from an easing bias early this year to a more neutral position, due to CPI and asset price inflation, depreciation pressure and the need to deleverage," said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. "Abrupt tightening is unlikely since achieving growth target remains the priority."

"Credit is steady compared to the October figures in the past three years," said Wen Bin, a Beijing-based researcher at China Minsheng Banking Corp. "Usually the fourth quarter will see less credit. It basically shows the PBOC wants to keep the money supply stable."

"The drop in new lending last month was seasonal and does not reflect a shift in broad credit growth, which was stable in October," said Julian Evans-Pritchard, an economist at Capital Economics in Singapore. "This stability may not last, however, and we expect credit growth to decelerate further in coming quarters."

The Details

  • New medium- and long-term household loans stood at 489.1 billion yuan, down from 571.3 billion yuan in September, according to the PBOC statement
  • Those loans, which are mostly mortgages, account for 75 percent of total new lending
  • Household short-term loans dropped 56.1 billion yuan last month versus a 71.5 billion yuan increase in September

— With assistance by Xiaoqing Pi, Yinan Zhao, Kevin Hamlin, and Miao Han

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