China Money Supply Growth Exceed Estimates

By Bloomberg News - Jan 9, 2012 9:42 AM GMT+0800


China’s December lending and money supply growth exceeded economists’ estimates, signaling monetary conditions may be easing as the nation’s central bank said it must be prepared for possible shocks from the U.S. and Europe.

New loans (CNLNNEW) totaled 640.5 billion yuan ($101 billion) for the month, exceeding the estimates of all 18 economists surveyed by Bloomberg. M2, a measure of money supply (CNMS2YOY), rose 13.6 percent, compared with the 12.9 percent median of 18 estimates.

People’s Bank of China Governor Zhou Xiaochuan said yesterday the nation must be ready to combat possible shocks from Europe’s debt crisis and an uncertain U.S. economic outlook, echoing comments by Premier Wen Jiabao. China last month cut the reserve requirement for banks for the first time since 2008 as Europe’s debt crisis eroded demand for its exports and consumer prices moderated to the slowest pace in 14 months.

“This is better-than-expected monetary data, suggesting monetary conditions have started to ease,” said Liu Li-Gang, a Hong Kong-based economist with Australia & New Zealand Banking Group Ltd., who previously worked at the World Bank. Liu said he expects that the central bank may cut the reserve requirement again before the Lunar New Year on Jan. 23. “Such easing will help ensure a soft landing for the Chinese economy,” he said.

The statement posted to the central bank’s website yesterday didn’t contain a figure for China’s foreign-exchange reserves, which are usually released with lending and money supply data issued at the end of each quarter.
External Shocks

Stocks in China fell. The benchmark Shanghai Composite Index (SHCOMP) was 0.4 percent lower at 9:35 a.m. local time. The measure lost 1.6 percent last week.

Money-market rates had the biggest weekly decline (CNRR007) since November last week as the central bank refrained from selling bills to help ease a cash shortage ahead of the week-long New Year public holiday. The PBOC said on Jan. 6 it will suspend debt sales ahead of the festival.

Zhou yesterday said in an interview with the official Xinhua News Agency that the global economy will face “a string” of difficulties in 2012 as a result of the European debt crisis, uncertainties in the U.S. and slowing growth in emerging markets. China must be ready to pick appropriate policy instruments to combat external shocks, Zhou was cited as saying.

Fighting inflation (CNCPIYOY) is not as urgent now as it was in early 2011, Xinhua cited Zhou as saying after a two-day meeting of financial regulators in Beijing. The National Financial Work meeting, which was attended by senior officials including Premier Wen, is held every five years to form development plans for the financial sector, Xinhua reported.
‘Relatively Difficult’

Wen last week pledged to fine tune monetary policy to preserve growth as business conditions in the first quarter may be “relatively difficult.” The nation’s export growth slowed in November to the weakest pace since 2009.

China is scheduled to release data for December exports, imports and trade balance on Jan. 10. It’s also due to issue December inflation figures on Jan. 12 and data for annual 2011 and fourth-quarter economic growth on Jan. 17, according to the nation’s statistics bureau.

The central bank’s data yesterday showed that December money supply grew at the fastest pace since July. The 12.7 percent pace reported for November was the weakest since 2001.

Lending in December was the highest monthly figure since April (CNLNNEW). The median estimate of 18 economists surveyed by Bloomberg was for 575 billion yuan of loans in the month.
Ease Liquidity

For the year, lending totaled 7.47 trillion yuan, according to the statement. The central bank may target lending in 2012 of 9 trillion yuan to 9.5 trillion yuan, said Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong.

The central bank still needs to ease liquidity in the money market to achieve more lending this year, Kowalczyk said. He said there is likely to be a cut of 250 basis points this year in the amount banks have to hold as reserves, with the first cut before the Lunar New Year holiday.

Easing in monetary conditions as indicated by the December data could also reduce the urgency for further policy easing, said Ken Peng, a Beijing-based economist at BNP Paribas SA.

In addition to lending and money supply, the December data also showed Chinese banks added 1.43 trillion yuan of deposits in the month. These funds largely came from the release of fiscal deposits into the commercial banking system as government agencies conducted concentrated spending at the end of the year, Peng said.

A “tepid” M1 money supply growth of 7.9 percent in December suggests that the increased bank deposits may have a “lifting impact” on January money supply, Peng said.

In a separate statement also issued yesterday, the central bank said it will continue to implement prudent monetary policy this year while maintaining policy continuity and controlling inflation expectations (CNCPIYOY). It will also make adjustments more targeted, flexible and forward looking, the central bank said.