Bloomberg News

China New Loans Top Estimates in Sign of Support for Growth (1)

May 11, 2013

China’s new local-currency loans exceeded estimates last month while money supply expanded at a faster pace, a sign policy makers are maintaining credit support for the economy after first-quarter growth unexpectedly slowed.

Lending was 792.9 billion yuan ($129 billion) in April, the People’s Bank of China said yesterday in Beijing, compared with the median estimate of 755 billion yuan in a Bloomberg News survey. M2 money supply rose 16.1 percent from a year earlier, following March’s 15.7 percent advance.

Inflation that’s run below the government’s annual goal every month this year has allowed the central bank to keep credit flowing as a recovery in the world’s second-biggest economy threatens to falter. At the same time, the lending growth and expansion of so-called shadow banking may increase risks in the financial system that new leaders including President Xi Jinping are trying to control.

“The strong credit supply and bank loans in the first four months of this year will be sufficient to support an economic recovery through the third quarter,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. “Financial risks may also rise.”

Aggregate financing, a broader measure of credit that includes trust loans, stock and bond sales, was 1.75 trillion yuan in April, compared with a record 2.54 trillion yuan the previous month.

The median economist forecast was for a 15.5 percent increase in money supply while the 10 forecasts for aggregate financing ranged from 1 trillion yuan to 1.8 trillion yuan, with a median of 1.5 trillion yuan.

Stocks Rise

The yuan fell 0.2 percent against the dollar in Shanghai yesterday, snapping a three-day gain. The benchmark Shanghai Composite Index, which closed before the data were released, rose 0.6 percent.

Standard Chartered Plc became the latest bank to lower its growth estimates for China, cutting its 2013 forecast to 7.7 percent from 8.3 percent and next year’s projection to 7.5 percent from 8.2 percent.

Goldman Sachs Group Inc., Royal Bank of Scotland Group Plc and JPMorgan Chase & Co. last month cut their 2013 forecasts to 7.8 percent after economic expansion unexpectedly slowed to 7.7 percent in the first quarter.

“There are few signs of renewed dynamism” in economic growth, Standard Chartered analysts led by Stephen Green, head of Greater China research in Hong Kong, wrote in a report dated May 10. “Credit growth should support near-term activity, though it raises questions about leverage, credit quality and growth sustainability in the next few years.”

Spillover Effects

Aggregate financing was a record in the first three months and new yuan loans were the most for a quarter in almost four years, spurring concerns that faster credit isn’t translating into economic growth.

The central bank said this week that it will use various tools to guide “stable and reasonable” growth in money supply and credit. “The negative spillover effects from loose monetary policy in major economies are growing, which has helped pro-cyclical credit expansion at home,” the PBOC said.

The ruling Politburo Standing Committee, headed by Xi, said last month that the country must guard against financial risks and boost consumption, issuing a statement after what the official Xinhua News Agency said was a special session on the economy.

Quality Growth

“New leaders are keen to put their house in order by preventing any small financial and debt incidents,” Bank of America Corp. economists led by Hong Kong-based Lu Ting said in a note yesterday. The banking regulator in March tightened rules on wealth-management products.

The government set a target for a 7.5 percent increase in gross domestic product this year and Premier Li Keqiang last month urged more efforts to improve the quality and benefits of economic growth, indicating the government is prepared to tolerate slower expansion.

Gauges of manufacturing and service industries released this month declined and a drop in producer prices deepened last month, indicating demand is softening.

“Monetary conditions are still loose,” said Qinwei Wang, China economist at Capital Economics Ltd. in London, who previously worked at the People’s Bank of China. More broadly, policy makers have moved toward “tightening oversight of lending through other non-traditional channels since late March, which should start to have an effect on the pace of overall credit expansion.”

Import Doubts

Yesterday’s credit data from the central bank follow a statistics bureau report this week showing consumer prices rose 2.4 percent in April from a year earlier, below the government’s annual goal of 3.5 percent. The producer-price index fell a more-than-estimated 2.6 percent, the 14th straight drop and the longest negative streak since 2002.

Separately yesterday, Nomura Holdings Inc. said “surprisingly strong” import growth in the first four months may have been inflated by fake invoices as companies circumvented capital controls to move funds into China. The skepticism adds to similar doubts over the veracity of the nation’s export data and broader questions about the reliability of China’s official economic figures.

A 28 percent slump in the value of import tariffs in the first quarter compared with a year earlier casts doubt over the credibility of data that show imports rose 8 percent in the period, economists Zhang Zhiwei in Hong Kong and Wendy Chen in Shanghai said in a report.

The statistics bureau is scheduled on May 13 to release data on industrial output and retail sales for April and investment for the first four months. Production probably rose 9.4 percent in April from a year earlier, compared with an 8.9 percent gain in March, based on the median analyst forecast in a Bloomberg survey.

--Scott Lanman. With assistance from Zhou Xin, Kevin Hamlin and Liu Li in Beijing and Ailing Tan in Singapore. Editors: Nerys Avery, Nathaniel Espino

To contact Bloomberg News staff for this story: Scott Lanman in Beijing at slanman@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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