China’s record expansion of credit in January reveals Beijing’s policy priorities. It sees avoiding a “hard landing” for the economy as more critical than imposing control over what some analysts call a debt “bubble”.
Several other strands of China’s broader economic policy were also discernible in the January lending numbers. Beijing wants to funnel relief to debt-laden companies, crank up investment, boost the property market, pay off foreign loans and use the bond market to effectively bail out local governments, Yahoo reported.
“This strategy is to help avoid a hard landing in the economy in 2016, though at the cost of continuing to fuel the credit bubble,” wrote David Hensley of JPMorgan in a research note.
Though the jump in lending was partly driven by seasonal influences, it was clear from the composition of lending that Beijing, which wields considerable influence over its financial sector, was also seeking to stimulate activity in the real economy.
Medium and long-term corporate loan growth—the portion of lending that tends to be channeled most directly to long-term productive investments—rose sharply, rising 205% month-on-month and 73.2% year-on-year to Rmb1.06 trillion ($162.6 billion).
“This suggests that lending to infrastructure projects is increasing and that earlier bottlenecks in the funding of these projects are being cleared,” according to a research note from FT Confidential Research, a unit of the Financial Times.
Total renminbi loans rose to a monthly record high of Rmb2.51 trillion in January, up from Rmb597.8 billion in December to form the main portion of a total Rmb3.42 trillion in total social financing, the broadest official measure of credit expansion. This figure, also a monthly record, was nearly double the Rmb1.81 trillion in December’s TSF.
