Credit growth is shot in financial arm

A staff member of a bank in Taiyuan, Shanxi province, counts cash at a customer-facing counter. (Photo by Zhang Yun/For China Daily)

China's credit expansion aims to strengthen the real economy's growth in the coming months, accompanied by the fine-tuning of the central bank's monetary policy and the deepening of reforms to facilitate the deleveraging process.

Recent discussions among financial experts focused on the new trend of bank lending showing strong growth momentum even as the money supply shrunk significantly.

According to data released by the People's Bank of China, the central bank, Chinese banks extended 11.16 trillion yuan ($1.69 trillion) in new loans in the first three quarters of this year, 998 billion yuan more than the loans in the same period last year.

New loans to non-financial enterprises and government institutions reached 5.73 trillion yuan in the first nine months, indicating credit demand from the real economy.

The growth of M2, a broad measure of money supply that covers cash in circulation and all deposits, rose 9.2 percent from a year earlier by September, slightly up from a historic low of 8.9 percent in August, mainly due to a decline in interbank wealth management products, PBOC data showed.

Bank loans to financial institutions dropped sharply when the central bank announced a "conditional" reserve requirement ratio or RRR cut for some commercial banks, to support small and micro enterprises, startups and agricultural production since next year.

According to a research note from China Minsheng Bank, lenders are expected to increase credit to such struggling sectors of the economy in the fourth quarter, in order to make the most of the conditional RRR cut.

The PBOC had specified that banks' annual outstanding or new loans for inclusive financing should account for a certain portion of their total lending, if they wish to become eligible for the RRR cut.

The drive to bring down financial institutions' leverage ratio started earlier this year. The tone was set at the National Financial Work Conference chaired by the top leadership, which underlined prevention of systematic risks.

Although still moderate, deleveraging has produced discernible results, which can be seen in the recent decline of money supply.

The downtrend may remain in the coming months when financial regulators will likely be keen to squeeze any asset price bubbles that may form from interbank trading of wealth management products or other financial instruments, said Ba Shusong, chief economist at the China Banking Association.

Zhou Xiaochuan, the central bank governor, said prevention of price bubbles should be the main task of a newly established committee on financial stability. He made the remark in an address to the Group of 30's International Banking Seminar in Washington earlier this month.

The Financial Stability and Development Committee, which was set up after the National Financial Work Conference in July, will work toward taming shadow banking activities, streamlining regulation of the asset management sector, regulating internet-based financing and financial technology firms, as well as supervising financial holding companies.