PBOC soothes cooling concerns

New monthly financial statistics may help relieve the fear that China's economy is cooling.

Chinese banks lent 1.32 trillion yuan ($217.54 billion) worth of new yuan loans in January, reaching a record high since January 2011. Total social financing also rose to 2.58 trillion yuan, the People's Bank of China said in a statement on Saturday.

Both figures are higher than the market expected. Lian Ping, chief economist of the Bank of Communications, said their previous forecast of 1.15 trillion yuan worth of new yuan loans in January already exceeded the expectation of many economists, but it turns out that the actual amount is even higher.

"It seems that the Chinese economy will not become weak or lead to a weaker demand for loans," Lian said.

His point of view was shared by HSBC economists Sun Junwei and Qu Hongbin. In an HSBC report released on Saturday, they said demand is likely not as weak as many expected, considering the sharp rebound of mid- and long-term loans to corporate sectors, which accounted for 38 percent of the total new lending.

The PBOC statistics also showed that M2, a broad measure of money supply that covers cash in circulation and all deposits, increased 13.2 percent year-on-year to 112.35 trillion yuan by the end of January.

"The stronger-than-expected rebound in new lending and total social financing, as well as stable M2 growth in January, is supportive for growth in the near term. With inflationary pressures staying muted, the PBOC should have more room to strike a balance between stabilizing growth and controlling risks to financial stability," Sun said.

Lian noted that it is usual for loans to spike in January, when banks try to lend as early as possible to make profits, and the surge was partially because many banks stopped lending to certain industries after exhausting their lending quotas toward the end of last year.

But Sun emphasized that even if January's lending usually spikes, this is still a strong rebound, defying the distortion of Chinese New Year and Beijing's latest curb on shadow lending.

She said the PBOC's fourth quarter monetary policy report in 2013 reiterated its intention to stick to prudent monetary policy in the coming year and will keep reasonable growth of monetary aggregates while optimizing the structure of credit.

"This means that M2 growth target is likely to be kept unchanged at 13 percent year-on-year for 2014 and close to the current rate of growth. Therefore, there is less need for the PBOC to shift into a tightening bias, as inflationary pressures also remain muted," she said.

Although the economy is slightly better than many expected, people still have to wait a few more months to tell how it will really develop, said Lu Zhengwei, chief economist of the Industrial Bank.

"I still think that China will face the challenge of economic downturn this year," said Lu after reading the latest figures. "As the economy exceeded people's expectation, the current neutral, slightly tight monetary policy will remain for a while."

Lian said that in the short run, a slightly tight monetary policy will lead to tight liquidity and a hike of interest rates and financing costs, which will put pressure on economic operation.

He said he believes that the Chinese regulators will be more flexible in adjusting and controlling short-term liquidity this year by using various tools including standing liquidity facilities and short-term liquidity operations.

"The monetary policy will continue to be stable this year without much easing," he concluded.