Credit Expansion Buoyed by Real Economy

growth out to 2020. That implies credit to the real economy will have to stay on a rapid growth path,” Orlik said.

In a bid to improve credit support for small and micro-sized enterprises, startups and agricultural production, the PBC recently announced a targeted reserve requirement ratio (RRR) cut.

The new policy, which goes into effect in 2018, offers commercial banks a cut of 0.51.5 percentage points in the RRR if their annual outstanding or new loans in inclusive financing reach certain requirements.

China International Capital Corp. Ltd. had previously estimated that the cut may release more than 800 billion yuan ($122 billion) of liquidity into the economy after implementation.

According to Jiang Chao, chief economist at Haitong Securities Co. Ltd., the announcement, together with the September M2 data, did not indicate that the central bank is loosening its stance on financial deleveraging.

“Taking into account the high leverage in the domestic real estate market and potential interest rate hike by the U.S. Federal Reserve, it’s unlikely the PBC will loosen its monetary policy,” Jiang said.

PBC data also showed that in the first three quarters, Chinese banks extended 11.16 trillion yuan ($1.7 trillion) in new loans, 998 billion yuan ($152 billion) more than that in the same period last year.

New loans made to non-financial enterprises and government institutions hit 5.73 trillion yuan ($871.43 billion) in the first nine months, indicating credit demand from the real economy.

Medium- to long-term loans made to home buyers, mainly consisting of personal housing mortgages, increased by 4.2 trillion yuan ($638.74 billion) during the period.

By the end of September, outstanding yuan loans had grown 13.1 percent from a year earlier to 117.76 trillion yuan ($17.91 trillion).

The narrow measure of money supply (M1), which covers cash in circulation plus demand deposits, rose 14 percent year on year in September, on par with the rate at the end of August.