China Credit Growth Exceeds Estimates as Funding Remains Buoyant

China’s broadest gauge of new credit and an index of loan growth both exceeded projections, signaling that a government push against leverage hasn’t crimped lending.

Key Points

• Aggregate financing stood at 1.6 trillion yuan ($242 billion) in November, the People’s Bank of China said Monday, compared with an estimated 1.25 trillion yuan in a Bloomberg survey and 1.04 trillion yuan the prior month
• New yuan loans stood at 1.12 trillion yuan, exceeding all estimates in a Bloomberg survey in which economists projected an 800 billion yuan increase
• The broad M2 money supply increased 9.1 percent, exceeding projections and rising from the 8.8 percent record low in October

Big Picture

Policy makers have been walking a fine line between keeping credit flowing to the real economy and trying to curb lending that can fuel financial risk. PBOC Governor Zhou Xiaochuan has offered a series of recent warnings about debt levels in the economy, and top leaders on Friday pledged to "effectively" control leverage next year and prevent major risks, stepping up their assurances to maintain stability amid rising debt.

Total debt will reach 327 percent of economic output by 2022, double the level in 2008, Bloomberg Economics estimates. That would put China among the most indebted countries.

Economist Takeaways

"Yuan loans continue to be quite robust," said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. "Tighter regulation has had an effect," he said, adding that the aggregate financing downtrend will weigh on the economic expansion if it continues.

"The M2 growth rebound may reflect deleveraging in shadow banking and asset managers," said Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong. "Credit extension is shifting from shadow banking to the formal banking sector, and as a result, wealth management products are shifting back to deposits, which are part of M2."

"Demand for financing stayed solid," said Zhu Qibing, chief macroeconomy analyst at BOC International China Ltd. in Beijing. "The off-the-balance loans are moving on to the books. Monetary policy will stay neutral while strict financial regulation will continue."

Robust household borrowing "continues to drive China’s credit growth," said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. "Macroprudential measures could help cool transactions but underlying demand for property remains solid."

Bloomberg Economics

"The surprisingly large increase in credit shows the challenge facing the government in curbing leverage in 2018," Fielding Chen, a Bloomberg economist in Hong Kong, wrote in a report. "The data suggest bolder efforts are needed to rein in credit growth. Even so, BE’s view is policy makers are unwilling to take a major hit on growth."

The Details

• Outstanding aggregate financing rose 12.5 percent to 173.7 trillion yuan
• New shadow banking credit -- the sum of entrusted loans, trust loans and undiscounted bankers acceptances -- remained contained at 173 billion yuan
• New household loans stood at 620.5 billion yuan, accounting for more than half of the new yuan lending

— With assistance by Xiaoqing Pi, Enda Curran, and Yinan Zhao