a weekly chronicle of the Chinese economy
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based arereasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
Xin nián kuài lè -
kung hei fat choi
if in Canton.
The credit and monetary figures for January, which collectivelyrepresent perhaps the single most important piece of newsone receives on the growth outlook, were slightly firmer than
expectations and considerably above those ofthe public consensus. Just as all politicians purportedly carrya leadership truncheon in their knapsack,
perception is that the bulk of the economic commentariat hasa Chinese hard landing truncheon in theirs. On the basis of thislatest update on the real economy’s financial shadow, there letit lie, for at least the first half, and probably deep into Q3.
Underlying monetary conditions are providing a firm base ofsupport for the extension of bank credit. There are flatteringbase effects at play, with the January spike in narrow money(M1) the best example, but after a year in the doldrums, acombination of more balanced capital flows, an improvingincome environment in the real economy plus the PBoC’sliquidity operations, the monetary aggregates can now beconsidered ‘normalised’. The decisive bottoming out of assetprices is the best leading indicator of the funding conditionsfaced by the non-bank sector. New local currency bank loansrose by 1.07 trillion yuan in January, while other financing rose1.47 trillion yuan. The new credit supply in the month thusdwarfs that seen in the same month of 2012 (even after makingallowances for the timing of the LNY). The most dramaticturnaround is, unsurprisingly, in the non-bank space, includinga 600 billion yuan swing in the amount of new bill financingvis-a-vis January 2012. The raw growth rates are accordinglyspectacular, but are somewhat misleading. Triple digitpercentage growth in new credit, which we are now observing,would seem to indicate a tremendously easy monetary setting,rather than the neutral state that the official rhetoric implies.The key point is that
to the non-bank freeze of late2011, early 2012, the current setting is highly accommodative.In
terms though, things are not quite that exciting.
To give the appropriate context, total new credit in the year to January 2013 amounted to 33.4% of GDP, up from 25.5% in theyear to January 2012, 34.5% in January 2011 and 40% in January2010. Those comparisons imply that the present situationis not a rehash of the last time credit
spiked in thisfashion.
balances those figures with the variousperspectives provided by the survey data (firms’ perceptions ofbank willingness to lend, banks’ perception of loan demand andthe stance of policy) and hard data on bank behaviour regardsloan pricing (more loans are being written at a discount than ayear ago, but the discounted proportion is less than half thatseen in 2009/10), to argue that while overall conditions havethawed they are
representative of a ‘blind’ expansion.
Given all of the above,
finds it remarkable thatso many forecasters remain unconvinced that growth is goingto accelerate in a material fashion the first half of this year andhold at an elevated level in Q3. It is very difficult to argue thatgrowth will be in the low 8% area across the year on average,when the credit backdrop is so starkly different to the one thatproduced 7¾% growth in 2012, and global trade has enteredthe year on an improving trajectory.
view ofsequential progress - improvement in the first half, a plateau,then deceleration late, produces 8¾% in year average growth.
11 February 2013
Westpac Institutional Banking Group – Economic Research – email@example.com – www.westpac.com.au
New lending : credit supportive of H1 growth
-50005001000150020002500-50005001000150020002500Jan 09Jan 10Jan 11Jan 12Jan 13RMBbnRMBbn
Other financing*Bank to HouseholdBank medium & long term Bank short termBank -Bill financeTotal bank
* Other financing includes trust and entrusted loans, equityand bond raisings, non-bank bills and FX loans.Sources: Westpac, CEIC.
Growth in the monetary aggregates
Sources: CEIC, Westpac
Stats of the week: China has the world’s largest chickenpopulation. The US is #2, with half of China’s number.Indonesia, Brazil and Mexico round out the top five.
Total credit supply –new flows
TSF (lhs)Banks* (lhs)Other finance (rhs)
Sources: CEIC, Westpac.* Local currency loans only.12 month sum of new flows.
70 city house prices: month-on-month changes
-100-80-60-40-20020406080020406080100120Feb-11Aug-11Feb-12Aug-12Feb-13Net % of citiesNumber ofcities
Number increasing (rhs)Number declining (rhs)Net % Rising (lhs)