MNI ANALYSIS: China Credit Growth Slows On Quotas, Regulation

--Likely Credit Growth Pick-Up In January As Headwinds Disperse

     BEIJING (MNI) - China credit growth and money supply both slowed sharply in

December, impacted by quota restrictions and regulation demands. However, credit

growth is expected to pick up again in January.

     M2 money supply rose 8.2% year on year to CNY167.68 trillion, a new record

low growth rate, and below the 9.1% growth in November.

     Weaker non-bank financial institution deposits, which fell CNY912.9 billion

in December, may be the main contributing reason to the fall in M2 growth,

reflecting banks cutting interbank investment to meet regulator requirements,

including macro prudential assessments (MPA), liquidity coverage ratio and more.

     Weaker loan growth also contributed to the fall of M2 growth, as less money

flowed into the system from loan issuance.

     --QUOTA RESTICTIONS

     China issued CNY584.4 billion of new loans in December, less than the

CNY1.12 trillion in November and short of an MNI market survey foreseeing

CNY990.0 billion, reflecting the restrictions of quotas, rather than weaker

funding demands.

     Breaking down the new loan issuances, the short-term and long-term

household sector grew CNY18.1 billion and CNY311.2 billion year on year,

compared with increases of CNY202.8 billion and CNY417.8 billion in November,

respectively. Weaker growth in short-term household sector loans might be

affected by strong loan demand in November, while long-term household sector

loans suggest mortgage demand have not weakened much.

     Short-term and long-term corporation loan issuances was down CNY98.4

billion and up CNY205.9 billion respectively in December, compared with growth

of CNY19.7 billion and CNY427.5 billion in November, underlining the impact of

loan quotas.

     Total social financing (TSF), a gauge of overall credit and liquidity, was

CNY1.14 trillion in December, lower than the MNI median forecast of CNY1.50

trillion and down from CNY1.60 trillion in November.

     Lower TSF in December was mainly on weaker loans, as yuan loans to the real

economy sector recorded an increase of CNY576.5 billion in December, compared

with CNY1140 billion growth in November.

     Shadow banking was been significantly stronger in December. Entrusted

Loans, trust loans and undiscounted bankers' acceptances increased CNY60.2

billion, CNY224.7 billion and CNY67.8 billion, respectively, in December,

compared with growth of CNY28 billion, CNY143.4 billion and CNY1.5 billion in

November. 

     The data shows strong funding demands from the real estate sector, possibly

a result of banks' wealth management departments' effort to increase their

investments in non-standard assets at year end, leaving open greater investment

opportunities in the coming year.

     --JANUARY GROWTH REBOUND

     With the significantly slower credit growth in December caused mainly by

loan quotas and the impact of regulations, credit growth and money supply will

both likely pick up in January, as restraining factors will disappear.

     Given that the credit growth is crucial in sustaining the economic growth

rate in China, weaker credit demand is unlikely unless the government downplays

the importance of economic growth.

     However, MNI sees that corporate notes funding has turned positive since

November. Note funding growth was CNY38.5 billion in November and CNY139.3

billion in December. As higher notes funding often suggest weaker loan demand,

investors might want to keep track of the numbers going forward, as weaker loan

demand will benefit the bond market.

     However, at present, the increased note funding is not large enough to

suggest the loan demands has trended lower.

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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