China’s new bank loans rose to a record high of 4.9 trillion yuan ($720.21 billion) in January, exceeding analysts’ expectations and more than tripled the figure from December, according to data released by the People’s Bank of China. The central bank has been keen on boosting credit demand to kickstart a recovery in the country’s economy following the lifting of harsh pandemic controls. This year, a strong rebound in credit demand will be crucial for economic revival after harsh COVID measures and a crisis in the property sector dragged China’s growth down to 3%, one of its worst rates in nearly half a century.
Improvements in credit conditions, robust infrastructure spending, and supportive policy measures are expected to boost China’s economic growth to about 5% this year, even with a weaker global backdrop. However, analysts warn that the recovery momentum could be uneven, requiring policy to remain supportive for some time.
Corporate loans soared to 4.68 trillion yuan from 1.26 trillion yuan, highlighting the faster recovery in corporate credit. On the other hand, household loans, mostly mortgages, rose to 257.2 billion yuan in January from 175.3 billion yuan in December. The divergence between corporate and household loans underlined that the high jobless rate weighed on household confidence, said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
The increase in loans has been driven by banks’ pressure to gear up loan issuance following policy guidance to boost credit supply. However, an unidentified person at a state-owned bank said that the actual demand for loans was weak, despite the pressure. Manufacturing firms’ appetite for more credit remained soft since they took on many loans last year.
China’s new household deposits rose to 6.2 trillion yuan in January from 2.88 trillion yuan in December, which analysts are closely monitoring for signs that shell-shocked consumers are spending again after a year of lockdowns and job losses battered sentiment.
Other key credit gauges also showed encouraging gains. Broad M2 money supply in January grew 12.6% from a year earlier – the fastest pace since April 2016 – and above estimates of 11.6% forecast in the Reuters poll. It rose 11.8% in December. Outstanding yuan loans grew 11.3% from a year earlier compared with 11.1% growth in December.
The central bank promised to make its policy “precise and forceful” this year to support the economy, keeping liquidity reasonably ample and lowering funding costs for businesses. Analysts polled by Reuters expect the central bank to cut the benchmark lending rate – the one-year loan prime rate(LPR) – by another 5 basis points (bps) in the first quarter, and it is expected to offer more targeted support measures for struggling sectors.
While January’s new loans exceeded expectations, other data released on Friday showed that China’s January factory gate prices fell more than expected, indicating that manufacturers are not yet running at full speed even after the end of the zero-COVID policy. A car industry association also reported that vehicle sales slumped 35% from a year earlier.
In conclusion, the surge in new bank loans in China exceeded expectations, raising hopes for economic revival this year. The increase in loans has been driven by the central bank’s push to boost credit demand and support the country’s economy following harsh COVID measures and a crisis in the property sector. While the recovery momentum could be uneven, improvements in credit conditions, robust infrastructure spending, and supportive policy measures are expected to boost China’s economic growth to about 5% this year.