This weekend saw the release of China’s Total Social Financing (TSF) Numbers for January. A shock rise in the bank-lending category has sparked speculation as to China’s monetary policy direction; meanwhile the year’s growth target remains a mystery.
Intended as a broad measure of new credit in the economy, the TSF figures include normal (or “formal”) bank lending, as well as several other funding channels, some of which are more commonly referred to as “shadow” financing. The measure doesn’t stretch so far as to cover all “shadow” activities in China’s financial system, but the measure is fairly comprehensive.
The biggest shock in January’s figures (available in Chinese here) was the dramatic spike in RMB bank lending. RMB1.32 trillion ($217.6 billion) was lent out during the month, a massive increase over December’s tally of RMB483 billion. In itself, this is not surprising, since Chinese banks usually front-load their yearly lending to try and game the yearly official lending quota.
Yet this surge is the largest January increase since 2010, when China’s economy was still spinning through the gigantic stimulus released in the wake of the 2008 global financial crisis.
Total Social Financing for the month was RMB2.58 trillion. Trust lending, under much scrutiny recently given scares related to wealth management products, were about half the level seen in January 2013. Money supply is still increasing ahead of GDP growth rates—with the January year-on-year figure coming in 13.2 percent higher than a year earlier.
The data, especially the formal bank-lending total, caused quite a reaction when it was released. China’s equities, not surprisingly, jumped on the news. However, it is not entirely clear what the monetary policy outlook is for China. The Chinese New Year holiday distorts data at this time of year, and there are reports that the PBOC ordered banks to cool their lending during the last week of January.
The fall in trust lending and spike in bank-lending could also have been a sign of banks moving off-balance sheet lending back onto their books in light of recent attempts to crack down on the practice. Off-balance sheet lending ends up in the shadow sector, often with the help of the trust companies now under scrutiny.
It may be another month or two until the policy outlook becomes clearer. Yet three points can be made:
First, a return to loose monetary policy would be positive in the short term for growth, but would also suggest something of a U-turn on China’s road to rebalancing. According to Bloomberg, each $1 of credit added only 17 cents of GDP to China’s economy during the first period of 2013, down from 29 cents in 2012, and 83 cents in 2007. The term “credit addiction” would seem apt, for indeed addicts usually need more and more of their drug to achieve the same result. In this light, the PBOC’s decision to drain cash from the system on February 18 is a positive move.
Second, the TSF figure for January’s composition may be different, but the total number is not completely outrageous in comparison to January 2013 or indeed March 2013.
Third, the official GDP growth target, believed—but not confirmed—to be 7.5 percent for 2014, is going to require at least some stimulus if it is to be achieved. It is quite early for such a boost though, so investors should perhaps wait until February and March data are released before getting carried away with the January lending data.