China’s new local currency loans appeared to spike in January, but the rise of outstanding loans came in at a ten-year low and short-term deposits tightened markedly, possibly in response to tax and holiday pressures – so say economists, anyways, in their analysis of China’s latest lending and liquidity figures.

New renminbi loans last month came to Rmb2.03tn, up 95.2 per cent from the previous month but down 19.1 per cent year on year. The February level also fell short of a median estimate of Rmb2.3tn from economists surveyed by Reuters.

Chang Liu, China economist at Capital Economics, noted the rise in net new lending was seasonal, as there is normally a sharp increase in new lending at the start of each year when banks are issued new loan quotas.

Growth in total outstanding bank loans, he added, actually slowed to 12.6 per cent – the lowest level since 2006 – as lending to firms softened, though growth of loans to households “remained strong last month despite recently reintroduced restrictions on property purchases.”

M2, a broad measure of China’s money supply, grew 11.3 per cent year on year, dead-on a median forecast and remaining flat from a month earlier. However M1, a more narrow measure of short-term deposits, grew 14.5 per cent last month, down from 21.5 per cent in December.

Analysts Betty Wang and David Qu at ANZ said the decline in M1 may have been in part due to corporate cash withdrawals to cope with holiday demand and tax payments. But they added, “[i]t’s too early to draw any concrete conclusion based on data from any one month so we prefer to wait until February and March data to make further assessment.”

Total social financing, a still broader gauge of flows through China’s various financial channels, came in at Rmb3.74tn – up more than Rmb2tn from a month earlier and marking a rise of 12.8 per cent year on year, unchanged from December.

Channels commonly used for shadow lending – trust loans, entrusted loans and undiscounted bankers acceptances – rose to Rmb1.2tn in January, up 207 per cent from a year earlier and accounting for a third of all financing for the period.

A modified measure of total social financing that includes government bonds, issuance of which has increased markedly in recent years – showed credit growth slowing to 15.7 per cent, according to Capital Economics.

Quoth CE’s Chang Liu:

In addition to property purchase restrictions that are likely to have weighed on mortgage demand, the PBOC has reportedly asked banks to curb their loans during Q1. Monetary policy has also been tightened recently and a jump in market interest rates will be weighing on bond issuance and shadow financing. This will start to weigh on economic activity before long, with economic growth likely to begin slowing again sooner than many are currently anticipating.

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