Aggregate financing, a broad measure of credit, was 1.31 trillion yuan (R3.38-billion) last month, the People’s Bank of China said on Tuesday. That was below the median estimate of 1.85 trillion yuan in a Bloomberg survey of economists and compares with 2.4 trillion yuan in the same month a year ago. Growth in the broad M2 measure of money supply slowed to 11.8% from 12.4%.

Loan data was more promising: New loans for all borrowers including non-bank financial institutions reached 1.4 trillion yuan in the month, better than a projection among economists of 1.2 trillion yuan.

New mid- and long-term lending provided to companies was a particularly bright spot, rising to 1.21 trillion yuan from 737 billion yuan in November – a figure that was almost quadruple the amount from a year earlier. 

“The upbeat growth in longer-term corporate loans is likely a result of policy support for the financing of housing project delivery,” said Zhou Hao, chief economist at Guotai Junan International Holdings. And as new loans overall came in at a higher-than-expected numbers in December, he added that “there’s a big hope of massive loan extension at the beginning of 2023, further boosting the growth prospects”.

Economists at UBS Group AG said the loan improvement “reflects regulators’ efforts of urging banks to expand new bank loans”, including developer financing, as well as the continued credit support from policy banks for infrastructure projects.

China’s long-suffering property sector was a big factor in last year’s economic slowdown, though authorities have in recent months been trying to recalibrate their approach to real-estate regulation to fix the liquidity crisis among developers. 

This week, financial regulators met with major lenders and urged them to prevent risks at leading and quality developers, and to help execute plans to improve their balance sheets.

The plans include developing assets, extending debt and providing more equity financing for systemically important developers that are focused on their core business and have good qualifications. Bloomberg reported last week on support measures for the strongest and too-big-fail developers as the property downturn persists. 

Shares of Chinese developers in a Bloomberg Intelligence gauge of developers jumped as much as 1.5% in Wednesday morning trading, after falling in the previous two days. The stocks gained 7.8% last week.

Despite favourable policies to help developer financing, signs are rife that demand for real estate will take time to recover.  

New mid- and long-term household loans, a proxy for mortgages, was 182 billion yuan in December, down from 210 billion yuan in November. That suggests homebuyers remained cautious as virus infections ripped through the country following the end of Covid Zero, and as people remain wary about the long-term outlook of the property market after the long stretch of turmoil.

Deposits by the sector rose to 2.89 trillion yuan last month. That took the annual total to 17.8 trillion yuan, compared to 2021’s 9.9 trillion yuan as consumers saved more largely due to uncertain job and income outlook.

“The genuine credit demand remains sluggish due to the Covid impact,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd. Demand for funding was also undermined by sell-offs of wealth management products, he said. 

Heavy redemptions by retail investors prompted financial product managers to slash their bond holdings, deterring debt issuers to join the market given the sluggish appetite for new notes. Expectations of a growth rebound following the Covid Zero policy shift also reduced the appeal of China’s sovereign debt.

Net corporate bond issuance in December fell about 270 billion yuan, based on Bloomberg calculations, the first contraction since May 2021. The growth rate of the stock of credit slowed to 9.6%, a record low since comparable data began in 2017.

What Bloomberg Economics Says …

China’s credit expansion slumped in December, reflecting adverse seasonality and the impact from Covid spreading. This situation won’t persist — we expect credit to improve in January and February as these negative conditions dissipate.

Looking forward, banks tend to accelerate loan extensions in the first quarter, which should be helped by Covid infections peaking in some of the big cities. This combination is expected to be decisive in driving a credit rebound.

— David Qu, economist

Looking ahead, demand for funds could rebound in the coming months as the impact of Covid disruption wanes. Subway passengers in big cities started to rebound at the end of December, while millions of Chinese are beginning to travel around the country as the nation’s key holiday season kicks off.

The pickup in new lending last month has also fueled optimism on credit recovery.

Economists, meanwhile, expect the PBOC to keep monetary policy loose for at least the next few months to help the economy recover. And officials have recently said monetary stimulus in 2023 will be at least as strong as last year, and policy will be focused on supporting domestic demand. 

That may include interest rate cuts this year, or another reduction in the reserve requirement ratio for banks, or the amount of cash lenders have to keep in reserve. The PBOC last reduced that ratio toward the end of last year. BM/DM