Chart of the Week: Credit cycle turning in China?

Rising levels of new credit in China suggest that Beijing’s recent policy-easing measures may be beginning to feed through to the economy. Newly-increased total social financing (TSF) rose a record RMB 6.17 trillion in January, significantly in excess of expectations for a RMB 5.46 trillion increase. This wasn’t altogether unexpected as TSF typically registers strong gains in January, although this month’s reading was almost 20% higher than last year. Domestic bank loans, corporate bonds, government bonds and equity financing were significantly up compared with January 2021. The total stock of TSF grew by 10.5% in the twelve months to January, up from around 10% in September and October. M2 growth has also firmed in recent months and increased by almost 10% on a twelve-month basis.

Fathom expects further policy easing in coming months, as President Xi will not want to take any chances with the economy in such an important political year. We will gain a greater insight into the government’s thinking on the economy at the annual ‘Two Sessions’ meetings early next month.

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