Lending from the formal banking system in May picked up on a YoY and MoM basis and a modest rebound in the growth of mid- and long-term loans corroborates signs (CC May 31, Big Call) that fixed asset investment projects are picking up again. Mid- and long-term loan growth reached Rmb269.8bn in May, up significantly from Rmb189.3bn in April and somewhat higher than the Rmb244.7bn posted in May 2011. 

China’s central bank cut lending and deposit rates by 25bp today, the first rate cut since 2008 and in line with our out-of-consensus forecast that the Chinese authorities would cut rates in 1H12 in order to boost credit demand and revive investment (CC Dec 22 2011, Financial China; CC May 17, Macro View; CC May 31, Macro View).

After a dismal 2011, securities companies are benefitting from improved A-share performance, as well as longer-term financial reforms

A selection of key financial data over the past fortnight

Beijing made a push to channel private capital into state-dominated sectors with a document issued by six ministries last week that allows private capital into areas such as rail, health and transportation. In these areas, private capital may partake in enterprise restructuring, joint investment projects with state-owned enterprises (SOEs) and offshore investments. The China Banking Regulatory Commission (CBRC) also allowed non-state companies to buy stakes of more than 20% in city commercial banks, rural credit co-operatives and rural commercial banks.

Signs are emerging of stronger lending by some Chinese banks as a slew of stalled investment projects gain approval. We think the process of accelerated approval for infrastructure projects is likely to continue in coming weeks as local government officials lobby the National Development and Reform Commission’s (NDRC) headquarters in Beijing.

China has given the green light for the issuance of “junk bonds”, heralding an era of risk in a domestic bond market that has hitherto been designed to deliver safe financing for the country’s state-owned enterprises and institutions. The high-yield bond scheme, which is designated as a “pilot” programme, will allow small and medium-sized enterprises – which are mostly privately-owned – to issue bonds for the first time on a regular basis. We think the move marks a milestone in China’s financial reforms (CC Feb 23 Financial China) but will have limited immediate impact because of its small initial scale.

Since late 2011, banks have been quietly rolling over maturing loans to local government financing vehicles (LGFV) in response to recognition from top-level policymakers in Beijing that mass defaults by LGFVs would cause severe shocks to economic growth and disrupt this year’s all-important leadership transition (CC Nov 3 2011, Financial China).