20230512-招银国际-Credit_demand_softens_as_economic_recovery_slows_7页_702kb

CMB International Global Markets | Equity Research | Economic Perspectives

Analysis: China's Credit Growth and Economic Outlook

1. Overview
Despite a low year-on-year comparison base, China's new credit growth in April 2023 remained flat. Household credit demand softened due to a weakened recovery in the housing and durable goods markets, while consumer income and confidence stayed weak amid a sluggish labor market. Private businesses, which account for over 80% of urban employment, remain cautious about expanding capital expenditure and hiring. SOEs and local government financing vehicles (LGFVs), however, showed stronger credit demand, supporting corporate loan growth.

2. Credit and Finance Breakdown

• Total Social Financing: YOY growth picked up to 30.8% in April, higher than forecasts but below market expectations. Off-balance-sheet (OBS) financing remained weak due to ongoing risk aversion. Corporate bond financing declined further in April after a drop in the first quarter.
• Household Loans: Both new medium/long-term and short-term household loans turned negative, reflecting continued shrinkage in mortgage and durable goods demand, with weaker sales in lower-tier cities.
• Corporate Loans: Continued strong growth, especially medium/long-term loans, as businesses use debt to sustain operations. Bill discount financing improved amid lower discount rates, but corporate profit pressures and low loan rates are constraining growth.

3. Forward Outlook
The economic recovery momentum is fading, especially in the property sector, durable goods consumption, and business capital expenditure. Private business confidence and consumer confidence remain low, raising the possibility of additional monetary policy easing, such as cutting the reserve requirement ratio (RRR) or lowering the loan prime rate (LPR).

4. Policy Signals
China's authorities may need to adopt stronger pro-business measures, including further loan rate reductions, to boost confidence and stimulate a faster recovery, especially for the private sector.