New loans in China are projected to have surged in November, exceeding both the previous month and the year-earlier figure, according to a recent Reuters poll, reflecting the central bank's efforts to bolster confidence and stimulate demand in the country.
Based on the median estimates of 19 economists surveyed by Reuters, Chinese banks extended an estimated 1.3 trillion yuan ($181.72 billion) in new yuan loans last month. This figure marks a significant increase from the 738.4 billion yuan issued in October. It is also higher than the number of new loans issued in November 2022, which amounted to 1.21 trillion yuan, though the surge is still lower than the 2.31 trillion yuan recorded in September.
The poll also indicated that outstanding yuan loans in November increased by an estimated 11.0 percent year-over-year, a modest uptick from the 10.9 percent growth witnessed in October. In addition, the broad M2 money supply growth was projected to rise by 10.1 percent year-on-year, slightly decelerating compared to the previous month's 10.3 percent.
An increase in government bond issuance could contribute to a rise in total social financing (TSF), a comprehensive measure of credit and liquidity within the Chinese economy.
TSF is expected to rise to 2.6 trillion yuan in November, up from 1.85 trillion yuan in October. This increase is partly due to the off-balance sheet forms of financing included in TSF, such as initial public offerings (IPOs), loans from trust companies and bond sales.
The annual growth rate of outstanding TSF accelerated to 9.3 percent in October, up from 9.0 percent in September. The uptick was driven by efforts from local governments to issue refinancing bonds to fulfill their existing debt obligations.
The market will now closely watch for any signals of a rebound in the property market, including household loans and mortgages.
These loans contracted in October, its first fall since February 2020. Household loans decreased by 34.6 billion yuan in October after increasing to 858.5 billion yuan in September. Corporate loans declined to 516.3 billion yuan from 1.68 trillion yuan in September.
Chinese economy trajectory
According to BNN, the recent surge in new loans in China stands as a testament to the proactive measures implemented by the People's Bank of China (PBOC) to stimulate economic growth. This approach contrasts sharply with the tightening policies adopted by other major economies currently battling inflation.
Last week, Chinese central bank chief Pan Gongsheng pledged continued monetary support for the post-pandemic recovery while urging structural reforms to diversify the economy away from infrastructure and property.
Following two reserve requirement ratio (RRR) cuts in 2023, with the latest in September, analysts anticipate the PBOC to implement another reduction in the upcoming weeks. This will further ease credit conditions in the economy.
Despite the PBOC's efforts, Moody's, the international rating agency, has cast doubt on China's financial health. It lowered the outlook on China's A1 debt rating to "negative" from "stable," highlighting concerns about the financial implications of bailing out heavily indebted local governments and state enterprises.
The ongoing struggles within the property sector further contribute to concerns about China's economic trajectory. Oxford Economics lead economist Louise Loo estimates it will take at least 4-6 years for developers to complete unfinished residential projects in China, based on national data.
Aside from its shaky domestic growth, China's efforts to de-dollarize are gaining traction, with the yuan's share in global payments nearly doubling in 2023. While still modest, this progress underscores China's long-term ambition to challenge the dominance of the U.S. dollar despite the waning momentum of its Belt and Road initiative.