Shanghai Daily

Study says China credit growth set to continue

- Tracy Li FINANCE

MONETARY conditions in China have improved recently due to supportive government policies and the accelerati­on in credit growth is set to continue, according to an industry study.

Thanks to lower interest rates, increased liquidity through a lower reserve requiremen­t ratio and higher issuance of corporate bonds and loans, the country has seen much credit easing and that will support the post-COVID-19 rebound in growth according to HSBC’s global research team.

The banking giant predicts that headwinds to growth from both domestic and external fronts will prompt Beijing to continue to step up monetary easing in the coming quarters.

Credit growth will continue to expand, particular­ly growth related to infrastruc­ture investment, and HSBC expects the People’s Bank of China to further lower both the loan prime rate and deposit rate by 30 basis points this year.

A 52-basis-point cut to RRR is also expected within this year.

Targeted support

The PBOC has reduced the RRR for financial institutio­ns three times this year, releasing a total of 1.75 trillion yuan (US$245.4 billion) into the banking system.

The central bank also expects more targeted support for hard-hit businesses, especially manufactur­ing firms and smalland medium-sized enterprise­s, to help them remain operationa­l through targeted credit easing and a lower tax burden.

At the 13th National People’s Congress, policymake­rs indicated their monetary policy goals are for broad money, or M2, and total social financing growth to be “significan­tly higher” than in 2019. March and April have already seen noticeable pickups as M2 rose by double digits for the first time in three years (compared with 8.7 percent in 2019) and outstandin­g TSF rose by 12 percent in April (10.7 percent in 2019).

However, transmissi­on of monetary policy will take time. Specifical­ly, manufactur­ing investment, which is closely tied to short-term corporate debt issuance, is less likely to see a significan­t pick-up in the near term, as final demand and other factors, such as profits and business confidence, remain subdued, the study noted.

On the other hand, infrastruc­ture investment, which is closely linked to long-term corporate debt, may see a boost to growth of over 10 percent year on year in the next quarters.

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