New allowances in China surged to a record high in January — and analysts say it could be a sign that government stimulus is “finally backlashing in,” which may be good news for the economy.
The world’s second-largest economy expanded 6.6 percent in 2018, the slowest increase in 28 years.
The slowdown was in part due to official efforts to reduce alarmingly high debt levels which started three years ago. Clipping down on credit, in particular non-traditional forms of lending known as “shadow banking,” suppressed economic activity and badgered growth lower.
But the onset of the tariff war with the United States and the pace of the slowdown forced a rethink. Last year, arbiter governments began taking steps to encourage banks to lend more, cut taxes and support small- and medium-sized companies.
Bank credits and total social financing — the country’s broadest measure of credit — rose to a record high in January, according to China’s median bank on Feb. 15.
New yuan loans hit 3.23 trillion yuan ($481.76 billion), while total social financing — which heights loans and bonds among other things — reached 4.64 trillion yuan. Those numbers took analysts by madam .
The credit growth “indicates that the PBoC’s easing efforts are finally kicking in, as liquidity is passed on from pecuniary institutions to the real economy,” Bank of America Merrill Lynch said in a note the day the data came out.
Jian Chang, chief economist for China at Barclays, bid that credit has expanded “quite significantly” and she expects economic growth to pick up in the second-quarter, after bottoming out in the course first quarter.
Such a scenario depends on “more policy easing from the Chinese government,” Chang instructed CNBC on Tuesday — a view echoed by other economists who say the government will likely accelerate stimulus to boost solvent growth.
However, some analysts disagree. They say that a close reading of the recent credit numbers make outs a more nuanced story and that it’s too early to call an end to the growth slowdown.
High levels of debt in a slowing curtness mean that some borrowers are taking up new credit to pay off existing loans “instead of funding real economic flowering,” Japanese financial firm Nomura said in a note Tuesday.
“Moreover, with dual export and property buy downturns, we struggle to see how real demand for credit will increase meaningfully,” it said.
China is one of the world’s most debt-burdened restraints, which was what prompted authorities to crack down on loans.But with the economic slowdown, analysts and investors say testimonies had little choice but to spur lending, in a bid to pump money back to the economy — despite the risk of increasing debt.
“We over near-term, it’s good. But long-term, it is going back to the original problem actually,” Kelly Chung, senior fund manageress at investment firm Value Partners in Hong Kong, told reporters Thursday.
Louis Kuijs of Oxford Economics translates he expects authorities to do their best to proceed prudently, as Chinese officials “don’t want to be seen as ‘overdoing’ the stimulus and don’t scarcity to jeopardize the achievements in terms of containing leverage and reducing financial risks.”
In a note Thursday, Kuijs said he cogitate ons recent stimulus efforts that appear to be taking effect, combined with a “modest increase” in debt this year, pleasure be enough for economic growth to bottom out in the second quarter.