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Liquidity needs favor 7.5% GDP expansion
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Higher-than-expected growth in China’s new yuan lending and total social financing in November indicates that the domestic liquidity conditions remain favorable for the economy to grow 7.5 percent or higher, and the central bank is likely to keep its monetary stance, economists said.
Market participants had been worried over possible credit tightening measures by the People’s Bank of China, due to a jump in yields on Chinese government bonds in mid-November.
On November 20, the 10-year government bonds’ yield jumped to 4.7 percent on — the highest level in nine years — from 3.23 percent in mid-June.
The 10-year government bonds’ yield fell to 4.43 percent on November 27. At the time, markets worried that the rise in bond yields was engineered by the PBOC to reduce leverage and slow credit growth.
The PBOC on Wednesday released figures on November’s money supply, new loans and total social financing, which is a broader measure of liquidity in the world’s second-largest economy.
New bank loans and TSF rebounded notably to 624.6 billion yuan (US$102 billion) and 1.23 trillion yuan in November, PBOC data revealed.
November’s new loans represented an increase of 118.6 billion yuan, or 23.4 percent, from the previous month. The figure was also well beyond the market forecast of 580 billion yuan.
TSF in November was 43.7 percent higher than in October, a 374 billion yuan month-on-month increase. It also beat market expectations of 920 billion yuan.
M2, a broad money supply, which covers cash in circulation and all deposits, rose 14.2 percent year on year in November, down from the 14.3-percent growth in October, which was in line with market expectations.
“Growth in both M2 money supply and bank loans, the more reliable indicators for the liquidity available for the real economy, cooled only marginally to 14.2 percent year on year last month, which suggested that ‘liquidity tightening’ talks are exaggerated,” an HSBC research team led by chief China economist Qu Hongbin said in a note.
A research team with the Bank of America Merrill Lynch led by chief China economist Lu Ting attributed robust credit demand to three reasons.
Lu’s team said the rebound of GDP growth to 7.8 percent in the third quarter from 7.5 percent in the second quarter boosted confidence.
Confidence boost
Another factor is that messages from the Third Plenum of the 18th CPC Central Committee last month were overall positive for confidence.
Finally, external demand seems to have improved thanks to the recovery in the US and eurozone, as shown by the better-than-expected 12.7 percent export growth in November.
Lu said he believes the recent rise in bond yields and average interbank rates was mainly due to the interest rate liberalization by banks and other financial institutions in China.
Qu said he expects China’s overall liquidity conditions to remain relatively accommodating, despite high interbank lending rates, which may remain for a longer period, according to HSBC’s research.
The current relatively accommodating monetary conditions should be sufficient to support real GDP growth of above 7.5 percent while keeping headline inflation around 3 percent in the coming quarters, Qu said.
Early this year, the government set its targets, with economic growth at 7.5 percent and the Consumer Price Index, a main gauge of inflation, capped at 3.5 percent.
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