China's Credit Data Show Signs Deleveraging Is Starting to Bite

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Cyclists ride past the People's Bank of China headquarters in Beijing.

Photographer: Qilai Shen/Bloomberg

China’s efforts to curb credit growth are increasingly showing signs of working.

Key Points

  • Aggregate financing stood at 1.04 trillion yuan ($156.6 billion) in October, the People’s Bank of China said Monday, versus an estimated 1.1 trillion yuan in a Bloomberg survey
  • New yuan loans stood at 663.2 billion yuan, versus a projected 783 billion yuan
  • The broad M2 money supply rose 8.8 percent, compared with a projected 9.2 percent
  • Broad money supply growth was the slowest since at least January 1996; both credit indicators fell to the lowest since October last year. Credit growth typically slows toward the end of the year

Big Picture

Top leaders signaled a shift away from stringent growth targets at a key twice-a-decade Party Congress last month, and the central bank chief has warned of the risk of a sudden collapse in asset prices due to over-optimism. A faster than anticipated slowing of credit may present a risk to the economic outlook next year, at a time when China is seeking to open its financial system to outside investors further.

Read more about China’s move to open banks to foreign control

Economist Takeaways

"Money supply expansion is slowing down, signaling efforts to deleverage," said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. "Off-balance-sheet loans are moving onto balance sheets, and growth is decent after adjusting for the season."

"Credit growth slowed in the first month after the party congress, signaling policy makers are determined to cut excessive leverage as they’re free of the economic growth burden," said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. "With curbs on home mortgages and shadow banking continuing, credit growth will remain slow."

"Authorities seem determined to keep monetary policy relatively tight and have been proactive in clamping down on practices they see as risky," Freya Beamish, chief Asia economist at Pantheon Macroeconomics in Newcastle, U.K., wrote in a note. "Monetary and credit tightening will continue to take its toll on real growth, though, and China will struggle with the coming rise in Fed rates." She added that the PBOC ultimately must accept a weaker yuan next year as the economy is ill-equipped to deal with higher interest rates needed to hold the currency steady amid rising external yields.

Bloomberg Economics

"The data suggest credit became slightly less supportive for GDP growth," Fielding Chen, an economist at Bloomberg Economics in Hong Kong, wrote in a report. "A steep decline in China’s new credit in October largely reflected seasonality and government-ordered production cuts to clear the air around Beijing for the Party Congress. The data also reflected efforts to deleverage the economy, as the People’s Bank of China leaned against credit demand by guiding market rates higher."

The Details

  • Outstanding aggregate financing at end Oct. stood at 172.2 trillion yuan, up from 171.2 trillion yuan in Sept.
  • A Bloomberg Economics gauge tracking the main components of shadow banking -- entrusted loans, trust loans and undiscounted bankers acceptances -- edged up slightly
  • Entrusted loans -- organized by a bank between borrowers and lenders -- increased by 4.3 billion yuan, one of the smallest gains on record
  • Trust loans, typically made by trust companies to finance infrastructure and real estate, increased by the least in a year
  • Bankers’ acceptance, short-term credit issued by a company with a bank’s guarantee, was little changed

— With assistance by Xiaoqing Pi, Yinan Zhao, and Ailing Tan

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