Credit Climbs But More Stimuli Needed To Fight Growth Slump
March’s stronger-than-expected credit growth provided timely support to a quickly
worsening economy suffering from widespread COVID-19 outbreaks. China’s M1 and M2
growth recovered to 4.7% yoy and 9.7% yoy respectively, while Rmb3.13t of new loans
and Rmb4.65t of new TSF were extended. Given the substantial downward pressure
facing the economy, we expect the PBOC to deliver more and quicker stimulus
measures to cushion growth.
WHAT’S NEW
• Faster loan growth… M1 growth grew to 4.7% yoy in Mar 22, while M2 growth came in at
9.7% yoy. This was on the back of the better-than-expected surge in new total social
financing (TSF) of Rmb4.65t, which partly reflected seasonal tendencies for financing to
speed up following the Lunar New Year holidays. But we note that the increase, powered by
government bond financing and corporate lending, is much stronger than what seasonality
would suggest, thanks to regulators’ push for faster loan extensions. This, in turn, quickened
the growth in outstanding TSF to 10.6% yoy, from 10.2% yoy in Feb 22. It also puts credit
growth back on an upward trend after logging three consecutive months of slowdown.
• …but recovery remains uneven. Front-loaded fiscal stimulus drove government bond
issuance higher at 17% yoy in March, while regulators’ push for faster loan extensions also
reflected surges in corporate loans (Mar 22: Rmb2.48t). The recovery in loan financing for
both companies and households remains largely concentrated in short-term loans, while
long-term loans were still lower than their respective levels last year. Business and consumer
sentiment remain weak due to uncertainty surrounding China’s COVID-19 situation, a
property market slump, potential slowdown in global growth due to the Federal Reserve’s
interest rate hikes and the ongoing Russia-Ukraine conflict.
• More out-of-the-box thinking needed to boost loan demand. March’s data indicated that
monetary policy easing is at work but also highlighted that monetary policy lies not in
expanding money supply but credit demand. This means that along with the broad-based
monetary easing, including another round of RRR cuts and trimming of the costs of the one-year medium-term lending facility (MLF), more targeted support will be needed to boost
market confidence in 2Q22.
