Social finance comes back to life with stimulus



China’s total social financing rebounded strongly in May. The dawn is about to break in terms of credit stabilization as the domestic COVID-19 situation has started to ease, the country is promoting the resumption of work and production in many places, and the financial institutions strengthen support for the real economy.

Newly added total social financing, or additional TSF, was 2.79 trillion yuan ($417.56 billion) in May, up 837.8 billion yuan from the same period a year earlier. . The amount was the second highest recorded for the period over the years. TSF outstandings increased by 10.5% year-on-year, up 0.3 percentage points from the previous month.

In May, TSF’s growth structure was relatively balanced in terms of asset classes. Credit financing growth was 365.9 billion yuan higher than the previous month. The increase in direct financing and off-balance sheet financing were an additional 444.3 billion yuan and an additional 81 billion yuan, respectively.

TSF’s good performance in May mainly benefited from the following factors.

First, according to TSF’s statistical calculations, the newly added credit to the balance sheet was 1.82 trillion yuan, 0.39 trillion yuan more than the previous year. It is likely that the accelerated approval of some project loans, which were previously delayed due to the impact of the pandemic, drove the strong growth in on-balance sheet credits in May as works and production gradually resumed.

Second, the acceleration in government bond issuance led to an increase in year-on-year growth in direct funding, creating quite solid support for TSF in May.

Net financing through government bonds hit 1.06 trillion yuan last month, up 389.9 billion yuan from May a year earlier. The Ministry of Finance has repeatedly stated that issuance of the majority of new local government special bonds is expected to be completed by the end of June, which has spurred the acceleration of government bond issuance.

Third, reductions in off-balance sheet loans and trust loans slowed, strengthening the TSF to some extent in May. Entrusted loans decreased by 13.2 billion yuan and trust loans by 61.9 billion yuan. The total reduction was 95.2 billion yuan lower than the same period of 2021.

Under increased economic pressure since the beginning of the year, the enforcement efforts of financial regulators could be relaxed slightly periodically. From January to May, the total reduction in off-balance sheet loans and trust loans was lower by 426.7 billion yuan year-on-year, supporting TSF.

New financing of on- and off-balance sheet bills amounted to 606.1 billion yuan last month, well above that of May last year and the average annual amount seen from 2017 to 2021.

China is increasing its influence to further step up its efforts to help companies ease financing and fundraising difficulties.

Last month, new yuan loans reached 1.89 trillion yuan, up 392 billion yuan year-on-year. Companies have used short-term loans and bonds to increase their financial leverage. Growth in medium and long-term loans to businesses and growth in loans to households, although lower than the same period last year, improved slightly compared to April.

Household credit remained weak but recovered slightly due to the gradual easing of COVID-19 prevention and control measures, lower mortgage rates and the impact of policies aimed at stimulating consumption .

Year-on-year growth in household loans in May fell 334.5 billion yuan, better than April’s figure, which fell 745.3 billion yuan. The improvement may be due to three positive changes.

First, the better anti-COVID-19 situation has to some extent reduced the negative impact on residents’ immediate consumption and income.

Second, in addition to easing policy restrictions on buying and lending real estate, as well as implementing housing policies according to local conditions in each city, China has also made positive adjustments to financial policies. related to housing. The People’s Bank of China, the country’s central bank, said in May that it would allow commercial banks to cut the lower limit on interest rates on home loans for first-time home purchases by 20 basis points and to guide banks to lower the five-year prime rate. rate of 15 basis points. These measures will lead to a further reduction in mortgage rates and stimulate demand for mortgage loans.

Third, China has launched a series of policies to stimulate consumption. For example, the central government will halve the purchase tax levied on passenger vehicles whose price does not exceed 300,000 yuan and with engines of 2.0 liters or less. Local governments in various regions have also announced subsidies for new energy vehicles. This will likely help spur consumer loan growth. However, because people generally lack confidence in future incomes and house prices, many are unwilling to go into deep debt.

The PBOC encouraged credit expansion in May, which is helpful for the recovery in business lending. After establishing a loan facility worth 200 billion yuan in April to spur science and technology innovation, the PBOC announced in May that it had increased the targeted lending quota by another 100 billion yuan for the coal industry to support the clean and efficient use of the product. . The central bank also launched a 100 billion yuan loan facility to support the transport, logistics and storage sectors.

Chinese authorities have also pledged to increase credit issuance and strengthen financial support to key businesses and areas, according to a meeting jointly hosted by the PBOC and the China Banking and Insurance Regulatory Commission on May 24.

Currently, the problem of weak demand for medium and long-term loans has not yet been resolved. However, with China’s economic fundamentals gradually recovering and the PBOC’s efforts to foster credit expansion, a recovery in medium to long-term corporate lending, although still lagging, is to be expected. .

At the end of May, M2, a broad measure of money supply that covers cash in circulation and all deposits, rose 11.1% year on year, up 0.6 percentage points from the previous month. M1, China’s narrow measure of money supply, rose 4.6% year-on-year, decelerating 0.5 percentage points from the previous month.

The widening gap between the annual growth rate of M2 and M1 last month signaled businesses’ lack of confidence in production and operations going forward.

Household deposits increased by 739.3 billion yuan in May, 632.1 billion yuan more than the same period last year and 504.8 billion yuan more than the average amount in during the same period from 2017 to 2021. This shows that deposit holders are not willing enough to consume and have increased their level of savings for bad days.

In the first five months, deposits with non-bank financial institutions increased by about 1.5 trillion yuan, 857.9 billion yuan more than the average amount in the same period of 2017 to 2020, meaning idle funds, or money that has not been invested and is, therefore, not earning interest or investment income, still exist in the financial market.

Short-term business cash flows are weak. The reasons are probably as follows: operating cash flow from businesses is low, expectations for future development are low and real estate sales are still at an all-time low.

However, China has stepped up its tax payment deferral policies for micro, small and medium-sized enterprises, which helps them maintain a relatively healthy balance sheet. As the economy gradually recovers and freight and logistics gradually stabilize, we hope to see improved operating cash flow for businesses.

The authors are Zhong Zhengsheng, chief economist at Ping An Securities Co Ltd and director of the China Chief Economist Forum, and Zhang Lu and Chang Yixin, analysts at Ping An Securities.

Opinions do not necessarily reflect those of China Daily.


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