20241112-招银国际-Credit_slowdown_nears_its_conclusion_7页_825kb

China Economy: Credit Slowdown Nearing Conclusion

Summary

This report forecasts that the slowdown in China's credit market is approaching its end, driven by recent policy shifts towards significant easing. Despite ongoing deflationary pressures and private sector confidence issues, the Chinese government expects policies to stimulate credit supply, government financing, and sales of housing and durable goods.

Key Points:

1. Current Credit Situation:

   • Credit Growth Weak: Outstanding social financing (TSF) and RMB loan growth rates hit new lows in October 2024. Total social financing shrank (24.3% YoY decline), largely due to a sharp drop in government bond financing (32.9% YoY).
   • Loan Data: New RMB loans to the real economy fell sharply in October, continuing their decline from the previous month. Corporate loan contraction remained significant, excluding government finance activities. Household short-term loans were still subdued, despite a notable rebound in medium-to-long-term household loans, reflecting improved property sales in Tier-1 cities.
   • M2 Growth: M2 growth rebounded moderately, aided by increased deposits related to equity investment and PBOC support for brokers/funds/insurers. M1 growth recovered slightly.

2. Policy Response:

   • The People's Bank of China (PBOC) has eased liquidity and credit supply through RRR cuts and interest rate reductions.
   • The Ministry of Finance initiated measures involving potentially risky local government (LG) debt swaps to address fiscal distress.
   • Local governments relaxed property policies.

3. Outlook & Future Actions:

   • The report anticipates that recent policies will boost credit supply, leading to an end of the slowdown.
   • The PBOC is expected to further ease liquidity and credit conditions in 2025, possibly through another 0.5-1ppt RRR cut and a 20-40bp reduction in LPR and deposit rates.
   • Despite these measures, policy support for consumers remains limited, hindering broader credit expansion due to ongoing deflationary pressures and low confidence.

Conclusion:

While data indicates a challenging period for credit growth, the report concludes that the easing policy shift, including central bank actions and fiscal measures, is positioned to reverse the trend, suggesting an upcoming conclusion to the credit slowdown phase in China's economy.