Credit tapering in China to continue in 2014: JP Morgan

Credit tapering in China to continue in 2014: JP Morgan



China’s lending moderated in 2013 and the growth of broad money supply slowed, triggering forecasts that credit tapering will continue in 2014. China’s new renminbi-denominated lending stood at 8.89 trillion yuan (US$1.5 trillion) in 2013, up 687.9 billion yuan (US$113.6 billion), the central bank announced on Wednesday.New loans denominated in foreign currencies hit 584.8 billion yuan (US$96.48 billion) in the 12 months, representing a year-on-year decrease of 331.5 billion yuan (US$54.69 billion), according to Sheng Songcheng, financial survey and statistics chief at the People’s Bank of China.

Total social financing, a measure of funds raised by entities in the real economy and a broad measure of liquidity in the economy, stood at 17.29 trillion yuan (US$2.919 trillion) last year, up 1.53 trillion yuan (US$252.4 billion) from a year previously and a record high.

New renminbi lending accounted for 51.4% of social financing, the lowest amount in history, and 0.6 percentage points lower than the previous year.

The narrow measure of money supply (M1), which covers cash in circulation plus current corporate deposits, rose 9.3% year-on-year to 33.7 trillion yuan (US$5.6 trillion).

The broad measure of money supply (M2), which covers cash in circulation and all deposits, jumped 13.6% to 110.7 trillion yuan (US$18.26 trillion) in 2013, growing by 0.2 percentage points less than in 2012, Sheng said.

Outstanding cash in circulation (M0) amounted to 5.86 trillion yuan (US$966.8 billion), up 7.1% from a year earlier.

Last year, the net amount of cash in circulation stood at 389.9 billion yuan (US$64.33 billion).

China’s foreign exchange reserves rose US$509.7 billion to reach US$3.82 trillion at the end of the year.

Bank deposits, in renminbi and overseas currencies, rose to 107.06 trillion yuan (US$17.66 trillion) at the end of 2013, up 13.5% year-on-year.

“The moderation in M2 and credit growth is in line with our view that credit tapering will continue in 2014,” said Zhu Haibin, JP Morgan China chief economist, in an email.

Credit tapering could drag on economic growth in two ways, Zhu predicted.

Firstly, China’s economic growth has been largely driven by credit expansion in recent years, he said, historical evidence suggests that credit growth tends to lead gross domestic product (GDP) growth by two quarters. Secondly, credit tapering has caused tighter liquidity in the interbank market. In the second half of 2013, interbank rates generally drifted upward and exhibited greater volatility, and the higher funding costs also affected the bond market as both government and corporate bond yields rose significantly, according to Zhu.

In 2014, interbank rates may continue to drift upward and seasonal volatility may persist, he added.

Sheng said 2014 will see the central bank continue to implement a prudent monetary policy, make appropriate preemptive adjustments, and employ various management tools on liquidity to make monetary conditions “neither too strict or too lenient.”

Sheng vowed to actively supervise shadow banking activities and monitor their risks so they can better serve financial activities and the real economy.

China has kept a proactive fiscal policy since late 2008, when the country unveiled a 4 trillion yuan (US$659.9 billion) stimulus package to counter the impact of the global financial crisis, with prudent monetary policies in place since late 2010.

China will publicize its annual economic performance data next Monday. The country set its 2013 growth rate target at 7.5%.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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