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China's Lending By Banks In 2023 Reached A Record High, But The Country's Economy Remains Weak

China's Lending By Banks In 2023 Reached A Record High, But The Country's Economy Remains Weak
While China's new bank lending increased less than anticipated in December, 2023 loans set a new high as the country's central bank maintained an accommodating monetary policy to bolster an unexpectedly fragile economic rebound.
According to figures issued by the People's Bank of China on Friday, Chinese banks extended 1.17 trillion yuan ($163.31 billion) in new yuan loans in December, up from November but falling short of analysts' forecasts.
According to a Reuters survey of analysts, fresh yuan loans were expected to reach 1.40 trillion in December, up from 1.09 trillion in November and on par with 1.4 trillion a year earlier.
New bank lending for the year reached a record 22.75 trillion yuan, up 6.8% from the previous record of 21.31 trillion yuan in 2022, or about comparable to the UK's GDP.
Despite this, the second-biggest economy in the world has had difficulty regaining momentum, with a poor and fleeting recovery following the COVID-19 pandemic. There is still a lack of trust among consumers and businesses, local governments are drowning in debt, and the ongoing real estate crisis is hurting investment and development.
With demand weak, the economy is also facing sustained deflationary pressures heading into 2024, keeping alive hopes for more policy easing measures to prop up growth.
"Monetary policy will be loosened as we face deflationary pressures," said Zong Liang, chief of research at state-owned Bank of China.
"Interest rates should be appropriately lowered given that real interest rates are relatively high."
Additional statistics that China revealed on Friday supported the idea that the economy is recovering in a very uneven way, with exports increasing but deflationary pressures continuing due to weak domestic demand.
China's fourth-quarter gross domestic product and data on retail sales, investment, and industrial output for December will be released next week. These figures will provide investors with some indication as to whether the economy was able to pick up steam before 2024 or whether additional help will be required.
It is anticipated that China's economic growth will reach the stated target of approximately 5% in 2023, and the government will likely adhere to that target this year.
Against the backdrop of worries about deflationary pressures and uncertainties about when the housing collapse will bottom out, analysts anticipate that the People's Bank of China (PBOC) will shortly announce further easing measures to help the economy.
In an effort to stabilise the faltering economy, the central bank is anticipated to increase liquidity infusions and lower a crucial interest rate when it rolls over maturing medium-term policy loans on Monday.
However, the fact that more credit is going to productive sectors than to consumption presents a problem for the central bank since it may increase deflationary pressures and lessen the impact of its monetary policy tools.
In 2023, home loans totalled 4.33 trillion yuan, or approximately 20% of the total new loans, while corporate loans amounted to 17.91 trillion yuan.
The broad M2 money supply increased by 9.7% from the previous year, the lowest since March 2022, according to central bank statistics. This was significantly less than the 10.1% expected in the Reuters poll. In November, M2 increased 10.0% over the previous year.
After growing 10.8% in November, outstanding yuan loans increased 10.6% in December from a year earlier, reaching the lowest level in more than 20 years. 10.8% growth was predicted by analysts.
A broad indicator of credit and liquidity in the economy, the growth of outstanding total social financing (TSF) accelerated to 9.5% in December from 9.4% in November and a year earlier.
TSF comprises off-balance sheet financing sources such bond sales, trust company loans, and initial public offerings that are not part of the traditional bank lending system.
TSF decreased from 2.45 trillion yuan in November to 1.94 trillion yuan in December. Reuters polled analysts, and they predicted a TSF of 2.20 trillion yuan in December.

Christopher J. Mitchell

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