In recent months we have been coming across articles and reports stating that the Chinese government is significantly pulling back on their accommodative stance on lending, but we must continue to stress that this is not very accurate. A significant change could occur later this year (we do not expect that it will), but so far this year the central government is acting in a similar manner as was seen during much of last year.
Data released earlier this month showed that new lending set another all-time high in January, with year-on-year growth also easily exceeding the year-on-year growth seen during the second half of last year.
Chinese banks issued a record 3.58 trillion yuan in new loans in January, which marks a month-on-month increase of 2.32 trillion yuan (184%) and a year-on-year increase of 240 billion yuan (7%). While new lending often sets records in January, the year-on-year growth is particularly noteworthy as lending during the second half of 2020 rose by 5%. So far this year, lending growth is exceeding that level.
By allowing monthly new lending to rise to an epic 3.58 trillion yuan in January (which would have been unheard of just a few years ago), the central government is showing that it is still very much working on supporting the economy. Overall, we remain of our view that the government this year will mainly be aiming to reduce risk in the housing market, and that elsewhere lending will stay strong. As we also have been stressing in our Weekly China Reports, we continue to anticipate that financial reforms seen domestically in 2019 and in prior years will continue to be abandoned, and that the government will continue to take advantage of turmoil in the United States and elsewhere and work to further enhance its power and influence globally.
Also of note is that outstanding loan growth last month came in at 12.7%, which is just slightly lower than 12.8% growth previously seen in December. The last eleven months have now seen China’s outstanding loan growth average 13%. In comparison, the previous eight months (July 2019 through February 2020) saw outstanding loan growth average 12.4%, which marked the lowest outstanding loan growth seen since 2001.