Sell-Side Takes On China Credit Figures

Goldman, J.P. Morgan & Nomura weigh in on the credit data released late yesterday for China

• Goldmans: "April loan, TSF and M2 data all came in well below expectations after strong growth in Q1. Total RMB loans surprised the market to the downside and the weakness appeared to be broadly based - both households and corporates' loan growth decelerated from March, with the only exception being bill financing. This composition of loan data suggests payback effect after the very strong credit growth in Q1. Lower manufacturing PMIs, very low inflation and weak credit extensions in April are all consistent with slower sequential activity growth after the initial stage of reopening boost passed. Policymakers guided banks to cut deposit rates recently amid falling lending rates, low inflation and weak credit demand."
• Nomura: "As favourable base effects subside and post-Covid recovery momentum wanes, credit growth is likely to remain subdued in months to come. As the pent-up demand for in-person services may not be long lived, property woes re-emerge and the export sector deteriorates, we believe the post-Covid sweet spot for China’s economy is drawing to a close. Amid weakening credit demand, a broader deposit rate cut, ongoing disinflation, falling market rates and the Fed signalling a potential pause, we maintain our view that the likelihood of a PBoC policy lending rate cut has been increasing, although it is still not our central case."
• J.P. Morgan: "To some extent, the slowing in April credit growth is perhaps not too surprising, reflecting partial reversal of the record high credit extension in 1Q. In our view, the risk of early exit of policy support appears low: we expect credit policy to be relatively stable going forward, with our forecast of TSF growth at 9.8% in 2023. Meanwhile, one of the key drags for weaker-than-expected April bank loan and TSF growth appears to be household loans. As such, housing market appears to remain a risk factor to the economy’s recovery path going ahead, especially if confidence amongst potential home-buyers and private real estate developers is not able to recover steadily in the coming months."