Monetary Policy

Beijing confirms bank loan roll over, Wuhu reverses property gambit

China has instructed its banks to roll over loans to local governments, confirming an effective bailout of Local Government Financial Vehicle (LGFV) debt that has been underway since at least November last year (CC Nov 3 2011 Financial China). The confirmation, reported by the Financial Times today, provides some context to Premier Wen Jiabao’s comment yesterday that Beijing will “fine-tune” its economic policy this year. We think the fine-tuning will mainly come in the shape of a further loosening in liquidity policy.

January new loans lower than expected

New loans extended by Chinese banks in January totalled Rmb 738.1bn, down from Rmb 1,026bn in January last year and undershooting market expectations that new loans would come in at above Rmb 1tn for the month. We think the lower than expected loan growth is largely due to the Chinese New Year holiday, which fell in January this year but in February in 2011, damping commercial activity for around a week at the end of the month. In our view, the slower loan growth may point to weakening investment activity and slightly slowing growth but does not signify a sharp slowdown.

Keeping the energy flowing

Acupressure is the art of restoring energy flows by massaging pressure points in the body. Beijing’s current economic policy appears similar. The pressure points it is focused on include the property sector, the banking system and local government debts, and in all three of these key areas recent signs are showing a clear intent to ensure that energy keeps flowing.

China’s inflation suggests more liquidity easing

Inflation figures released today extend Beijing's license to ease liquidity policy further in coming weeks (CC Jan 12 Macro View) and further relieves manufacturers from the big margin squeeze that characterised 2011 (CC Jan 12 Consumer China).

Stimulus required

Though a repeat of the muscular Rmb4.0tn stimulus package seen in 2009-2010 is now hardly possible, the need for Beijing to inject extra vigour into consumer spending, exports and even fixed asset investments is slowly becoming clearer.

PBoC surveys show exporter sentiment, inflationary pressure continue to weaken

Two sets of survey data released by China's central bank on Thursday show business sentiment among China's entrepreneurs continues to weaken. Of 5,000 companies surveyed by the People's Bank of China (PBoC), 24.8% believe China's economic status to be 'relatively cool' while the percentage of those believing that conditions are still normal slipped to 67.1% from 74.3% in the first quarter. A separate index of company owners' views of economic conditions for the fourth quarter declined 6pp QoQ to 41.7.

Central bank cuts reserve requirement ratio

The People's Bank of China, the central bank, today cut the reserve requirement ratio (RRR) for its commercial lenders to 21%, from a record 21.5% previously. The hike will come into effect on December 5 and marks the first RRR cut in almost three years. The cut supports our call (CC Nov 17 Macro View) that liquidity easing would continue in the near term helped by ebbing inflationary pressures.

Liquidity easing underway

Economy still slows, but outlook improves somewhat.

October loans surge, officials embrace private lending

Key cyclical and structural changes are underway in China's financial system. New loans from the formal banking system surged in October, confirming Beijing's looser liquidity policy (CC Sept 8 Macro View). Credit extended from the shadow banks, however, slipped appreciably during the month, according to a China Confidential survey, and we think they will remain subdued in November. Finally, officials are giving their blessing to state-sanctioned private lenders – as distinct from unregistered underground banks – in what promises to be an important liberalisation of state financial control.

China cardholders enjoy buoyant October spending

China's Bankcard Consumer Confidence Index, a measure of cardholder spending on non-essential items, continued to recover, up 0.29 percentage points from September to 86.63 in October and the highest level in terms of index figure and quarterly growth in the last six months, China UnionPay, which compiles the index, said.

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09 Feb 2012

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