Does January’s surge in lending mean China’s credit crackdown is slowing?

Official data released on Monday showed a sharp increase in lending in China in January. Here are the facts:

• New loans reached RMB 2.9 trillion ($458 billion) last month – a record high
• This was a five-fold increase from December’s total lending of RMB 548 billion ($86 billion)
• The figures even exceeded lofty predictions of RMB 2 trillion for the month (according to a poll by Reuters)
• Lending rose to both companies and households: to companies, new debt was RMB 1.78 trillion (up 631.9% from December); to households this was RMB 591 billion (up 89.9% from December)
• Total Social Financing (TSF) slowed down to 11.3% growth from 12% in December

Whilst the surge in RMB loans would suggest a backtracking of deleveraging efforts, there was a consensus among analysts that the associated deceleration in TSF growth indicates that this is most likely due to a shift of shadow banking back onto company balance sheets. Most analysts have also stuck to their outlook that governmental crackdowns on debt exposure are ongoing and will take a greater impact in 2018:

Trivium highlighted that the total of new loans will always increase with a growing economy, and so “we should pretty much expect ‘record new loans’ every January. What matters more is the size of new loans in comparison to outstanding loans or broader credit.”

Mizuho noted that shadow-banking finance has greatly slowed, increasing only RMB 1.1 trillion last month – one-tenth of the rate seen in January of the previous year.

Capital Economics said that bond issuance, the “primary drag on credit growth last year,” may be reaching a plateau after bond yields fell slightly in the last quarter.

UBS believe the regulatory tightening will further decelerate TSF growth in 2018. The People’s Bank of China will likely use monetary policy, such as cutting the required rate of return, to proactively manage liquidity.

Moody’s foresee regulation spreading outside its initial remit of reining in certain segments of the shadow-banking sector. Michael Taylor, a Moody’s Managing Director and Chief Credit Officer for Asia Pacific, said, “The effect of intensified regulation is no longer limited to de-risking the financial sector, but is now beginning to impact the supply of credit to the real economy.”