MNI: China's Total Social Financing To Grow Faster In 2022

Chinese total social financing, a broad measure of credit, is set to grow more quickly this year as the People’s Bank of China looks past previous concerns over excessive leverage and boosts loans to real estate and infrastructure spending in line with the government’s upcoming economic growth target, policy advisors and analysts told MNI.

Authorities are relaxing restrictions on mortgages and loans to developers imposed in 2021 amid fears of a property market bubble, and banks will be encouraged to provide more loans to finance infrastructure spending, said Lian Ping, chief economist at Zhixin Investment Research Institute, adding that growth in total social financing will exceed the 10.3% seen to the end of last year.

But even as it seeks to counter weak domestic demand, the PBOC is likely to remain cautious about the pace of rate cuts at a time when Federal Reserve tightening is narrowing the China-U.S. yield spread, tending to increase the relative attractiveness of dollar assets, advisors noted. (see MNI:PBOC RRR Cut In View As Fed Narrows Policy Window-Advisors)

The central bank should cut reserve requirement ratios for banks by 50 basis points this quarter, but will tread carefully, monitoring the effect of its policies on credit creation, before adjusting policy benchmark loan rates, Lian said, pointing to the cautious tone seen in last month’s 10-basis-point cut in some policy rates.

GROWTH TARGET

Premier Li Keqiang is likely to announce a target for growth in gross domestic product of around 5.5% at the National People’s Congress starting on March 5, from 2021’s “above 6%”, Lian said. Li is also likely to repeat language used last year calling for growth in M2 and total social financing to match the expansion of nominal GDP, he said.

The central bank faces an urgent task to stimulate credit demand, as a deteriorating economic outlook has dampened companies’ willingness to invest, said Zhao Quanhou, a researcher at the Financial Research Center, part of the China Academy of Fiscal Sciences under the Ministry of Finance. This year’s GDP target should be set above 5%, he said.

With government borrowing likely to remain little changed this year, bank loans will be key for boosting investment, Zhao said, calling for authorities to clarify the so-called “traffic light” system introduced by the Central Economic Work Conference last December to regulate the private sector, and to emphasise the positive role private investment plays towards the government’s pro-growth efforts.

TARGETED TOOLS

New loans in January hit a record-high CNY3.98 trillion as outstanding total social financing increased 10.5%, but long-term corporate and household loans remained weak, the index showed.

According to Pingan Securities, regulators could also use targeted tools to boost bank loans to small and micro-businesses, as well as the green sector.

Small businesses, poor farmers and micro-companies took 25% of new bank loans in 2021, with green loans accounting for 19.8%, Pingan Securities noted. Real estate accounted for 13% of new loans, compared to 26.3% in 2020.

Manufacturing and high-tech sectors should see fast increases in credit this year due to central bank support, Lian said.