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Chinese Credit Crunch‏: Credit Expansion Improves Slightly

ByDanske Markets
Published 08/26/2013, 06:00 AM
Updated 05/14/2017, 06:45 AM
FTNMX301010
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Credit expansion in July improved slightly as stronger growth in new loans from banks offset continued weakness in credit growth from non-bank sources. That said, total credit growth has slowed in recent months compared with H1 13 driven by a marked slowdown in credit from non-bank sources. The money market has moved out of stress with most credit risk indicators trading at levels from before the money market stress in June. However, interest rates levels in both the money market and government bond market are higher than before the stress in June, suggesting that monetary conditions have tightened compared with H1 13.

Macroeconomic data in July and August have so far been better than expected and suggest that the Chinese economy again has bottomed out and might have started to recover. The money market stress in June has so far not had a substantial impact on the property market with sales of new homes only declining slightly in June and stabilising in July. People's Bank of China so far has responded with injecting more liquidity into the money market and banks' excess reserves have been increasing.

Despite signs that the Chinese economy could already have started to recover we remain cautious about H2 13 as tighter monetary conditions will probably weigh on growth. That said, it does not look like a severe credit crunch because banks still appear to be able to expand their balance sheet, partly offsetting the negative impact from the markedly lower credit growth from non-bank sources. We expect GDP growth to be 7% q/q AR throughout H2 13, marginally higher than in Q2 13. Admittedly, the latest data suggests an upside to this forecast.

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