China's December Lending and Money Supply Growth Miss Forecasts

Loan disbursements in China slowed more than expected in December 2013 and the growth of broad money supply also eased, suggesting that central bank measures to put the brakes on credit expansion to control debt levels had gained a foothold.

Chinese banks doled out 482.5bn yuan ($79.9bn, £48.7bn, €58.6bn) worth of new yuan loans in December, lower than the expected 600bn yuan and much lower than the preceding month's 624.6bn yuan, central bank data showed on 15 January.

The broad M2 money supply rose 13.6% on an annual basis in December, the People's Bank of China (PBoC) said, lower than the 14.2% increase in the preceding month. A Reuters poll had predicted a 13.8% increase for December.

Outstanding yuan loans increased 14.1% from a year ago against predictions for a 14.3% growth.

The central bank said China's total social financing aggregate, a broad gauge of liquidity in the world's second-largest economy, at 1.23tr yuan in December remained unchanged from 1.23tr yuan in November.

Central bank data also revealed that China's foreign exchange reserves, already the world's largest, rose $157bn in the October-December quarter to $3.82tr at the end of 2013.

Analysts said the PBoC would maintain a neutral policy stance with minor changes to ensure economic growth remained on track while avoiding a debt-induced financial crisis.

Shadow Banking

Analysts also said Beijing would rein in the expansive shadow banking sector.

Sheng Songcheng, head of the statistical department at the PBoC, told a news conference that the central bank would actively guide shadow banking activities to support the real economy.

"We will continue to implement prudent monetary policy this year and make appropriate fine-tuning and pre-emptive adjustments in policy to make monetary conditions not too tight or too loose to create a good environment for steady economic growth," Sheng said.

Barclays Capital said in a note to clients: "We think elevated market interest rates and limited credit availability towards year-end pushed borrowers to non-bank and shorter-term financing in China. However, we think the Chinese authorities continued strengthening of shadow banking regulation (including the recently reported Document No. 107) will weaken off-balance-sheet lending going forward."

"Loan growth remained relatively stable at 14.1%y/y in December, while M2 growth dropped to 13.6% on weak deposit growth. We continue to expect the PBoC to maintain a tightening bias in its monetary policy stance, although it remains to be seen how market demand will play out. We expect the M2 growth target will be kept at 13% in 2014."

Barclays Capital said in a separate note: "China's foreign reserve amounted to $3,820bn in Q4 13, suggesting a sharp increase of $157.3bn in Q4 13 (Q4 12: USD26.5bn), on capital inflows amid large interest rate differentials and a wide trade surplus.

"This has put upward pressure on the CNY. On 7 January, Yi Gang, a PBoC deputy governor and director of China's State Administration of Foreign Exchange, reiterated his view in 'Qiushi' (a local publication) that the costs of reserve accumulation could now outweigh the gains. He suggested allowing greater flows of capital into and out of China in 2014."

"Consistent with this view, the PBoC set the USD/CNY reference rate at a historical low of 6.0969 at end-December, implying appreciation of 0.58% (6.4% annualised) in that month alone. Accordingly, the USD/CNY spot rate has been guided stronger, by 0.8% (6.02% annualised) since December 2013," the British firm added.

New bank loans increased 8% year-on-year in 2013 to 8.89tr. Disbursements had risen 10% in 2012.

For 2013, total social financing grew 9% year-on-year to 17.29tr yuan. That growth dropped sharply from 23% in 2012.