Chinese bank lending dramatic rise

Chinese bank lending in January was the highest in four years, suggesting that the economy may not be cooling, as many experts claim.

In January, there were $217 billions’ (1.32 trillion yuan) worth of loans, a threefold increase over December’s figure, says the People’s Bank of China.

Januray 2014’s figure of 1.32 trillion yuan was much higher than January 2013’s 1.07 billion.

Experts had forecast 1.32 billions’ worth of loans for January.

The first month of the year is usually a high one for loans, but nobody expected it to be the highest January since 2010.

Chinese bank lending shows economy not slowing down

These latest Chinese bank lending figures may appease those who have been expressing concern about China’s economic slowdown and predicted a negative outlook for 2014/2015.

The Financial Times quotes Capital Economics, which said in a note “The bigger picture is that bank loan growth has been effectively flat since the middle of 2013. We think that tight monetary conditions are probably here to stay.” It added that credit growth is at its lowest rate in 18 months.

Total social financing in January, at 2.58 trillion yuan, was double December’s figure as a result of the dramatic increase in bank lending. Social financing is a measure of funds that entities have raised through bank credit and other means.

According to Bank of China Ltd, the latest Chinese bank lending figures show that the economy remains strong despite other recent economic data that have suggested things are slowing down rapidly.

Mixed signals in the Chinese economy

Ma Xiaoping, an economist at HSBC, said to The Wall Street Journal in an interview “The higher-than-expected new loans showed the traditional pattern by Chinese banks to make more loans at the beginning of the year. But the data also indicated that the real demand from the economy is still robust, though manufacturing PMI pointed to another direction.”

The People’s Bank of China is trying to steer the country’s economy along a path of limited credit expansion plus economic growth, not an easy task.

Economists had forecast tighter monetary policy for 2014 as authorities try to address the expansion of the shadow banking sector, which has the potential to cause serious disruptions if the economy slows down. Shadow banking refers to the financial activities of institutions that are not regulated like traditional banks are.

M2 rose 13.2% year-on-year to 112.35 trillion yuan at the end of January. M2 is a broad measure of money in supply that covers all deposits and cash in circulation. January 2014’s growth rate was 2.7 percentage points lower than in January 2013, and 0.2 percentage point less than in December 2013.

M1 grew 1.2% to 31.49 trillion yuan at the end of January 2014. M1 covers demand deposits and cash in circulation.