Investing.com -- In an effort to bolster a patchy economic recovery, new bank loans in China have soared beyond expectations to a record high in January. This move by the central bank strengthens expectations for additional stimulus in the coming months, as U.S. tariffs pose a potential increased pressure on the economy.
Data from the People's Bank of China revealed on Friday that Chinese banks extended 5.13 trillion yuan ($706.40 billion) in new yuan loans in January, a figure four times greater than that of December and surpassing analysts' forecasts. Predictions had estimated new yuan loans to rise to 4.5 trillion yuan last month, a significant increase from 990 billion yuan in December and compared to 4.92 trillion yuan a year earlier - the former record.
At the start of the year, Chinese banks typically rush to lend as they vie for higher-quality customers and gain market share. However, analysts warn that ongoing economic uncertainty continues to affect credit demand.
In January, household loans, including mortgages, increased to 443.8 billion yuan from 350 billion yuan in December, while corporate loans soared to 4.78 trillion yuan from 490 billion yuan, as per central bank data.
Despite these increases, new bank lending in the previous year totaled 18.09 trillion yuan, a decrease from a record 22.75 trillion yuan in 2023, marking the lowest level since 2019. This decline comes as businesses and consumers remain hesitant to take on more debt amid an uncertain economic outlook.
The economy experienced a growth of 5% in 2024, meeting the government's official target. However, the post-pandemic recovery has been inconsistent, with exports and manufacturing compensating for weak domestic consumption.
Beijing is expected to maintain a growth target of around 5% this year. However, analysts are unsure how quickly policymakers can stimulate sluggish domestic demand, especially as U.S. President Donald Trump's trade measures add more pressure on Chinese exporters.
To maintain growth and counter rising external pressures, Beijing has pledged higher fiscal spending, increased debt issuance, and further monetary easing.
Since September, Beijing has increased efforts to revive the economy, including interest rate cuts, a 10 trillion yuan debt relief package for local government, and tax incentives to stimulate demand in the property market hit by the crisis.
Analysts anticipate further cuts in interest rates and bank reserve requirement ratios (RRR) as early as the first quarter, even as the central bank firmly supports the yuan currency in the face of Trump's threats.
Investors are eyeing the annual parliament meeting in March, where the government is expected to reveal new stimulus measures, along with economic targets.
In January, outstanding yuan loans increased 7.5% from a year earlier - the lowest on record - down from a 7.6% pace in December. Analysts had expected a 7.3% growth. Broad M2 money supply grew 7.0% from a year earlier, the central bank data showed, below analysts' 7.2% forecast in a Reuters poll. In December, M2 expanded 7.3%.
The narrower M1 money supply grew 0.4% in January from a year earlier, compared with a 1.4% fall in December. Starting from January, the central bank included personal demand deposits and non-bank payment institutions' client provisions in M1, which previously only covered cash in circulation and corporate demand deposits.
Annual growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, was 8.0% in January, unchanged from December.
TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies, and bond sales. TSF surged to 7.06 trillion yuan in January from 2.86 trillion yuan in December. Analysts had expected 6.4 trillion yuan. The acceleration in government bond issuance to boost the economy could help increase growth in TSF.
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