PBOC likely to use ‘variety of tools’ to ensure liquidity and reasonable growth

China’s central bank could become more accommodative towards supporting the country’s growth, after new data showed mortgage lending and the level of local government bonds issued rose last month.

Commercial banks extended 826.2 billion yuan (HK$1 trillion) worth of new loans in October, an increase of 136.4 billion yuan from a year earlier, according to data from the People’s Bank of China (PBOC).

Aggregate financing, a gauge that measures a country’s overall funding for the real economy, stood at 1.59 trillion yuan last month, a rise of 197 billion yuan.

Alongside stable lending rates, the PBOC also maintained liquidity in the market in support of potentially more issuances of special-purpose bonds, which are used by local governments to raise funds, particularly for construction and projects.

The central bank’s latest data showed that local government bond issuance last month was 123.6 billion yuan higher than a year earlier, reaching 616.7 billion yuan.

Meanwhile, M2 supply, the broad measure of money supply, grew by 8.7 per cent, 0.4 percentage point higher than a month earlier.

“The growth of bank credit and aggregate financing has stabilised, with their monthly amount slightly higher than our expectations,” said Wen Bin, chief analyst at China Minsheng Bank.

“The PBOC is expected to use a variety of tools to ensure reasonably ample liquidity, while improving its structural monetary policies to help key areas and weak links and to ensure that [reasonable] growth occurs.”

Beijing has refused a Westernstyle stimulus to support its economy during the pandemic, not only because China recovered faster, but because it was already dealing with a national debt crisis that saw companies such as developer China Evergrande Group teetering on the brink of collapse.

But its insistence on a tighter monetary approach, as well as more deleveraging, has raised concerns about the economy’s growth, which slowed to 4.9 per cent in the third quarter from 7.9 per cent in the second quarter.

In a sign of a pivot on that policy, regulators have started to fine-tune the property policies in the past two months, including by convening meetings with developers, implementing a soft loosening of mortgages for buyers and offering loans for qualified developers.

Tang Jianwei, senior economist with Bank of Communications, said the household sector had felt the easing, but corporate credit demand remained weak.

“We expected a gradual improvement of credit to both enterprises and households, because the central bank recently stressed the stability of credit growth and vowed to guide more commercial bank loans,” he said.