China’s credit growth likely slowed significantly in April from prior month, corporate loans and government bond issuance fell, analysts say
China’s credit growth likely slowed significantly in April from prior month, corporate loans and government bond issuance fell, analysts say

China’s credit growth likely slowed significantly in April from prior month, corporate loans and government bond issuance fell, analysts say

 

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Market watchers expect China’s credit growth to slow significantly in April from the previous month amid the impact of the recent Covid-19 outbreaks and the slowing economy.

New bank loans are expected to reach 1.49 trillion yuan in April, according to average estimate by economists at 13 major Chinese and overseas financial institutions.

That would be sharply lower than 3.13 trillion yuan recorded in the previous month, but largely in line with the level seen in the same period last year.

Total social financing, a broad measure of liquidity and credit in the economy, is expected to have reached 2.12 trillion yuan in April, according to the economists’ average forecast. That would be well below 4.65 trillion yuan seen in March, but slightly higher than 1.47 trillion yuan seen in the same period last year.

The main drag on new bank loans remains market concerns and the growth was mainly supported by short-term loans and bill financing, said analysts.

As the People’s Bank of China (PBOC) has been stepping up financial support to the real economy, interest rates on bills declined at the end of April and short-term financing and bill financing climbed further to become the major driving force of credit growth, according to a note from China International Capital Corporation.

Meanwhile, real estate spending and consumption remained under pressure of the Covid-19 outbreaks and they are unlikely to provide support to loan demand from the household and corporate sectors.

Medium- and long-term bank loans to the household sector are expected to slow further due to sluggish home sales. According to China Real Estate Information Corporation (CRIC), the country’s top 100 property developers’ contracted sales slumped 59.2% in April from a year earlier to below 500 billion yuan.

Latest data released by the PBOC showed that, by the end of the first quarter, China’s outstanding bank loans for real estate development declined 0.4% from a year earlier, slowing by 1.3 percentage point from the end of last year. Outstanding home mortgage loans grew 8.9%, slowing by 2.3 percentage points from three months earlier.

In addition, the Covid-19 outbreaks in several key cities including the financial and commercial hub of Shanghai may dampen corporate loans and other financing activities.

The technology hub of Shenzhen, which experienced an one-week Covid-19 lockdown in March, saw its month-on-month growth of new bank loans slow by 0.5 percentage points in March and year-on-year growth slow by 3.4 percentage points, according to a note from China Merchant Securities. “Considering that Shanghai experienced a much longer lockdown, it’s expected to have bigger impacts on the city’s loan demand.”

Government bond issuance may have also slowed in April.

According to estimates by Zhang Yu, chief macro economist at Huatai Securities, net financing through corporate bonds and government bonds totaled about 600 billion yuan last month, sliding by about 130 billion yuan from the same period last year.

“Issuance of local government special-purpose bonds decreased in April, bringing net financing via government bonds to negative territory,” Zhang said.

Wang Tao, chief China economist at UBS, estimated that net issuance of government bonds might have slowed to 200 billion yuan to 250 billion yuan, 120 billion yuan down from a year earlier, adding that issuance of local government special-purpose bonds in April was significantly slower than the first quarter of the year.

In addition, the economists in the 13 financial institutions expect China’s M2 money supply to grow 10% in April from a year earlier, according to their average estimate, unchanged from the growth in the previous month.

The strengthen of fiscal spending may increase significantly, according to the CICC note. “As of mid-April, the central bank had handed in 600 billion yuan of profits to the central government and fiscal deposits declined sharply in March.”

A PBOC official said on Tuesday that the central bank had handed in a total of 800 billion yuan of profits to the central government in a move to bolster the economy.