China’s central bank expanded credit and eased lending restrictions on the property sector, but its credit expansion remained slower than expected.

So where is the money going?

Apollo News cited some analysts pointing out that weak corporate activity and sluggish demand for medium- and long-term loans from residents were the main reasons for dragging down the credit growth in November.

Some others think that the rich people are “hoarding” money, while the poor are forced to “hoard” cash to pay off debts.

Data released by China’s central bank this week shows that the country’s new yuan-denominated loans totaled 1.21 trillion yuan ($173 billion) in November.

This figure represents an increase from a near five-year low of 615 billion in October, following China’s latest efforts to boost its economic growth.

However, the amount came in below market expectations of 1.35 trillion yuan ($194 billion), and was also lower than the 1.27 trillion yuan ($182 billion) issued in the same period last year. 

Data shows that the loan demand from households continued to be sluggish.

New medium and long-term loans to households rebounded to 210 billion yuan last month, but fell from last November’s 582 billion yuan. On a year-on-year basis, household loan demand has contracted for the 12th consecutive month.

Meanwhile, newly added social financing came in at 1.99 trillion yuan ($285 billion) in November, down 610.9 billion yuan from the same period last year. This data measures the funds that individuals and non-financial firms receive from the financial system.

An analysis pointed out that credit and social financing data is a more forward-looking type of macroeconomic data. With a high growth rate of social financing, social entities (including enterprises, residents and governments) receive more funds. But with low growth, these entities are receiving less funds, which reflects the fund shortage in the society.

Wang Tao is head of Asian economic research and chief China economist at UBS Investment Bank.

He said that new medium- and long-term household loans, mainly housing loans, were weaker than the same period last year. This may reflect the continued sluggish property sales and the lingering impact of mortgage cuts in some cities.

The lower demand for loans also reflects the lack of motivation for residents to increase leverage to buy houses.

While social financing in the broad credit measure fell, the growth rate of broad money supply M2 increased 12.4% year-on-year at the end of November, higher than the 11.8% growth in October. The M2 covers cash in circulation and all deposits.

It reflects the supply of funds was abundant, but loan demand remained subdued despite policy easing.

It also signals weak business activity and prudent household savings.

The central bank’s data shows that the money supply M1 increased slightly at 4.6% year-on-year. The M1 covers cash in circulation plus demand deposits.

This means the growth rates of M1 and M2 diverged, reflecting that the liquidity of the market is deteriorating.

M2 deposits accelerated their rise, reflecting the “hoarding” of the rich, and the poor are also doing so, but they are passively “hoarding money” to pay off debts.

According to UBS Investment Bank, though the Chinese government has introduced measures to free up more funds for lending and provide credit support for real estate developers, the overall credit growth rate may remain unchanged at 10% by the end of the year due to the high base last year and the continued sluggish real estate sales. In 2023, the growth rate is likely to decline slightly to 9.8%.

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