Loan, M2 data 'indicate tightening of credit'

Although the People's Bank of China has reiterated that it will maintain a "prudent" monetary policy this year, analysts said that money supply and lending data released by the central bank on Wednesday confirm that there's already been a tightening.

"The central bank adopted rational, appropriate macroeconomic control measures in 2013, promoting stable economic growth and basic price stability," Sheng Songcheng, head of the statistics and analysis department of the PBOC, said on Wednesday.

"This year, the bank will maintain and fine-tune its prudent monetary policy, making the policy neither too loose nor too tight to create a good environment for steady economic growth."

Total social financing hit a record high of 17.29 trillion yuan ($2.86 trillion) in 2013, with a slowdown in the second half. During the first six months of last year, aggregate financing reached 10.15 trillion yuan. It declined to 7.14 trillion yuan in the second half, contracting by 849.7 billion yuan year-on-year.

The annual yuan loans, accounting for 51.4 percent of total financing, dropped by 0.6 percentage point from 2012.

Zhu Haibin, chief economist in China at JPMorgan Chase & Co, said he expects total social financing to expand 16.2 percent in 2014.

"The flaw of the statistics covering social financing is that they don't include shadow banking," said Lucy Feng, regional head of banks research of Nomura International (Hong Kong) Ltd.

"I suggest that the PBOC release statistics on shadow banking on a regular basis so that market participants can prepare to avoid any sudden credit crunch."

Commercial banks' nonperforming loans, particularly those generated by off-balance-sheet lending, remain a major concern for investors despite the seemingly low NPL rates given in quarterly reports.

The PBOC has stepped up efforts to collect statistics on shadow banking and to monitor and analyze related activities, Sheng said.

The PBOC statistics also showed that new yuan-denominated loans stood at 482.5 billion yuan in December, down from 624.6 billion yuan in November but up 27.9 billion yuan from a year earlier.

Broad M2 money supply expanded 13.6 percent year-on-year in December, but that was still less than the 14.2 percent increase in November.

Zhu said that the moderation in M2 and credit growth in December supports the view that credit tapering will continue in 2014.

"Bank loans are likely to increase by 13.6 percent in 2014 and M2 growth will come in at 13.1 percent. But the central bank is likely to keep policy rates and reserve requirement ratios on hold throughout 2014," Zhu said.

Zhang Zhiwei, chief China economist at Nomura Securities Co Ltd, said monetary policy will remain tight in the first quarter. Zhang forecast that GDP growth will slow to 7.5 percent in the first quarter and 7.1 percent in the second, from 7.6 percent in the fourth quarter of 2013.

China's monetary policy will face greater challenges in 2014, said Wen Bin, supervisor of macroeconomic research at the Institute of International Finance of Bank of China Ltd.

As the US Federal Reserve Board has started tapering its quantitative easing, China's central bank will adjust its policies to stabilize liquidity and prevent it from being adversely affected by the withdrawal of foreign capital, said Wen.

He urged the central bank to further improve the nation's credit structure by increasing financing capacity for small and medium-sized enterprises, which play a large role in job creation, while decreasing financing for real estate.

The PBOC statistics also show that loan growth hit 17.1 percent in the western regions, 15.9 percent in the central regions and 11.9 percent in the eastern regions.

Commercial banks expanded lending to micro-sized and small enterprises last year. Out of 45 trillion yuan in loans to companies, lending to small enterprises hit 13 trillion yuan, up 14.2 percent.

As of the end of 2013, foreign exchange reserves had risen to $3.82 trillion from $3.66 trillion during the third quarter.