Newly Increased Credit in First Three Quarters Recreated a Record High, Monetary Policy May Fall Back to Moderate 10-31-2016

According to Central Bank, the newly increased credit in the first three quarters in China was about RMB10.16 trillion, which means that the newly increased credit may hopefully create a record high since the financial crisis in 2016.


Source: Internet

The Central Bank released the financial data of China’s credit in the first three quarters on 18th Oct. According to the statistics, the broad money (M2) increased by 11.5% YoY, which was 0.1 percentage point higher than that of the end of last month. The narrow money (M1), which mounted to the record high of 25.4% in the last six years, increased by 24.7% YoY, 0.6 percentage point lower than the growth of the end of last month.


According to Ruan Jianhong, new director of Financial Survey and Statistics Department of Central Bank, the fall back of the growth of M1 was mainly caused by falling growth of current deposits of M1. Affected by the National Holiday, some current deposits in China were changed into other deposits with higher profit such as call deposit, which reduced current deposits. In addition, the decreasing current deposit was also caused by the time when some financial institutions repaid the interests to clients at the same time at the end of the quarter.


According to Central Bank, the newly increased credit in the first three quarters in China was about RMB10.16 trillion, which means that the newly increased credit may hopefully create a record high since the financial crisis in 2016. The newly-increased RMB loan in Sep. was RMB1.2177 trillion. During the last nine months of 2016, the private housing loan increased by RMB1.8 trillion YoY to RMB3.63 trillion, among which the loan in Sep. increased by RMB20.55 billion YoY to 47.58 billion.


“Currently, new measures of regulations and control on real estate market are published in some cities, and thus the trend needs to be further observed,” according to Ruan, “one reason for the rapid growth on the individual housing loan can be contributed to fragmentation of China’s real estate market –some major cities boomed since the beginning of 2016, other reason lies in the asset allocation of financial institutes and resident department.”


At the same time, Central Bank released that the social financing increment in the first three quarters in 2016 increased by RMB1.46 trillion YoY to RMB13.47 trillion, among which the entrusted loan increased by RMB1.51 trillion, trust loans increased by RMB479.5 billion, undiscounted bank acceptance reduced by RMB2.05 trillion. In Sep., the social financing increment was RMB1.72 trillion, with YoY growth of RMB363.8 billion


As regulators strengthened the management on the bill, the bill of commercial bank continues to fall. Moreover, the high growth on the newly increased credits and loans established a foundation for the high growth of social financing. According to Zhou Hao, senior economist of Commerzbank Asia, most of the entrusted loan and trust loan in social financing were mezzanine loans for property developers buying land.


With the huge increase on the credit in Sep. and the signs emerged from the speech made by the president of central bank, the development of the future monetary policy would turn to be the key to the future market.


According to an inside banker, generally speaking, the credit would increase in Sep., while in the fourth quarter, the newly increased credit would continually reduce till the first quarter of 2017.


According to Zhou, both the mortgage of the resident and the direct financing in the social financing were related to the real estate, and therefore the policy tightening was inevitable. Moreover, the continuing relaxing on the monetary policy would just be benefited to the real estate market, and it would be more difficult to lower the deposit-reserve ratio and interest. The policy turned to the direction of risk management.


According to Deng Haiqing, chief economist of JZ Securities, the financial data of Sep. shows that China’s enterprises haven’t faced the financing demand contraction caused by worrying on economic slow-down yet, on the contrary, the de-leverage pressure from the reform of supply front went up. The Central Bank of China needs to keep maintaining the moderate monetary policy to avoid de-leverage too much.


According to Zhou Xiaochuan, president of Central Bank, the fast growing on China’s credit reflected the effort that China made to manage the risk and promote the economic growth under the circumstances of sluggish global economy.


Just half a year ago, Zhou mentioned, for the first time, that China’s monetary policy, which needs constant observations and adjustments, maintained a prudent monetary policy with slight easing bias.


From “prudent monetary policy with slight easing bias” to “have the control on the credit increase”, the monetary policy may officially fall back to the moderate.


According to Jiang Chao from Haitong Securities, the controlling on the real estate bubbles, short-term picking up on inflation, and the raising in interest rate in FED have all suppressed the short-term easing monetary policy. Moreover, the speech recently made by Zhou means that the process of lowering deposit-reserve ratio may postpone once again, while the reverse repo period prolonging refers the increase on the cost of capital in a short time. As the government strengthened the regulation and control on the real-estate market, the risk of economic downturn goes up, which also means a long-term decrease on the capital demand and the long-term easing on market liquidity. 


*The article is edited and translated by CCM. The original one comes from

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