China: Reopening supports credit growth in January – UOB

Economist at UOB Group Ho Woei Chen reviews the latest credit figures in the Chinese economy.

Key Takeaways

“China’s local currency loans rose by a record CNY4.90 tn in Jan (Bloomberg est: CNY4.20 tn, Dec: CNY1.40 tn). Similar to the trend in the preceding months, the biggest contributor to higher credit growth was corporate loans.”

“Confidence in the household sector has remained weak, resulting in weaker home purchases as well as consumption loans. Notably for 2022, loans to households slowed sharply to account for just 18% of the new loans compared to 40% in 2020-21.”

“The low credit impulse implies the recovery momentum had been weak. We maintain our forecast for China’s GDP growth to improve moderately to 3.4% y/y in 1Q23 (4Q22: 2.9%), accounting for a relatively higher base of 4.8% y/y in year ago period.”

“As the economy continues to recover and normalise in 2023, we expect credit growth to pick up along with stronger corporate activities, infrastructure construction and private consumption. The PBOC may also need to further cut its interest rate and RRR to boost the economic outlook.”

“On a longer-term basis, the growth in TSF in China would likely remain below 10% as the GDP growth moderates which limits banks’ credit expansion.”