China’s January Credit Growth: The Real Story

Business, China, Company Strategy, Economics, Oil & Gas


By John Richardson

QUITE  a lot has been made of the announcement on Sunday that China’s total social financing (TSF) in January was 2.58 trillion Yuan, which was double December’s level on an anticipated month-on-month surge in official bank loans. TSF is the measure of credit issued via the shadow-lending system and the state-owned banks.

Remember, China’s old model growth can only continue to function, or rather dysfunction in the long term, if ever-more volumes of credit are pumped into the system. Thus, equity and oil prices rallied on anticipation that 2014 GDP growth might not, after all, fall off a cliff.

“But January is always a time when lending is ‘front-loaded’. Banks rush to lend as much as they can at the start of the year, just in case the political environment shifts and they see lending conditions tighten as the year progresses – in other words, they want to ‘lock in’ interest-rate earnings,” a Hong Kong-based banker told the blog.

“They are also always in a rush in January to satisfy a backlog of loan applications that accumulate towards the end of each year,”  he added.

For him, therefore, a much more valid comparison was between the growth of TSF in January 2014 and January of last year.

Here, the picture is very different. As this Beyondbrics blog post points out TSF was virtually flat at 2.58 trillion Yuan in January this year compared 2.54 trillion Yuan in January 2013. This 1.6% increase was against an increase of 9.5% for the whole of last year and 22.6% for the full-year 2012.

As the chart above shows, in year-on-year terms, the growth in official bank loans (the blue line) was pretty much flat -and there was a sharp dip in the expansion of shadow financing (the red line).

And so do the maths again: TSF would have to expand at annual rate of 12% in 2014 if  GDP growth is going to hit 7.5%, according to the Chinese Academy of Sciences – and, of course, this would still represent a slowdown from last year’s GDP increase of 7.7%. And yet, as we have just said, January’s TSF  only rose by 1.6%.

Unless Beijing “blinks”, a course has thus been set for much-lower GDP growth in 2014 – perhaps even negative GDP growth, warns fellow blogger Paul Hodges.

A further sign that the “blink” might well not happen this time around were reports that on Tuesday, the People’s Bank of China (PBOC) stepped into mop excessive liquidity, as the government felt that TSF growth in January was excessive, despite its modest year-on-year increase.

“China’s central bank has removed nearly $8bn from the money markets in a bid to control the amount of credit in the country’s financial system,” wrote the BBC in this article.

“According to reports, the People’s Bank of China (PBOC) did so by issuing 14-day forward bond repurchase agreements, also known as forward repos.”

It was the first time since last June that the PBOC had used forward repos to tackle excess liquidity, said the BBC.

“China has been looking to suck excess cash from its open-market operations to reduce the risks of shadow banking, or informal lending to businesses,” added the same article.

“Shadow banking has been identified as a major risk to China’s future growth, because of the possibility of large debts turning sour.”


BBC: "How China Fooled The World"


By John Richardson FOR the last three years, the blog has been asking people to ...

Learn more

China's Capital Flight Challenge


By John Richardson CHINA’s economic statistics continue to take your breath aw...

Learn more
More posts
Global polyethylene demand in 2020 at risk of 2.4m decline because of coronavirus

By John Richardson I AM a bit confused this morning following some excitement about the Chinese deci...

Coronavirus: Global polypropylene demand in 2020 could fall by 2.6m tonnes over last year

By John Richardson SOME GOOD news might be that official Chinese state media announced that the numb...

Coronavirus threatens 2.9m tonnes of China PP demand as uncertainties increase

By John Richardson THE RUMOURS travelled around my contacts, and I am sure many of your contacts, fo...

More than 3m tonnes of Chinese polyethylene demand at risk from coronavirus

    By John Richardson THE GOOD news is that medical experts believe the novel coronavirus...

Coronavirus: Global polyester chain faces major production cuts, shortages and cost increases

By John Richardson A GREAT example of the extent to which global supply chains are exposed to China ...

Coronavirus: Global polyolefins cutbacks seem inevitable on major China demand loss

We all hope that the coronavirus outbreak will soon be brought under control, that’s the main ...

Why coronavirus will be a much bigger deal for petrochemicals than SARS

By John Richardson THE WORLD was very different in 2003 when SARS struck. Back then, China accounted...

China 2020 polyethylene demand 4.1m tonnes lower on single-use plastics ban and coronavirus

By John Richardson CHINA was supposed to be the one polyethylene (PE) market we could all depend on ...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more