China: Slower Credit Growth, More Monetary Easing

Barclays reports that China's Total Social Financing stock growth decelerated to 8.3% year-over-year in December, marking the slowest pace in ten months and down from 8.5% in November. Government bond issuance slowed notably to RMB 686 billion, as the bulk of the newly authorized local government debt had already been deployed in November. Private credit demand remains notably weak. New loans to the real economy contracted year-over-year for the sixth consecutive month, and households continued to repay debt for the third month running. Corporate long-term loan demand showed a marginal year-over-year increase, though this was partly distorted by a low base. The People's Bank of China responded with targeted monetary easing, cutting structural tool interest rates by 25 basis points and establishing a new relending facility for private enterprises. PBOC Governor Pan Gongstrike signaled a dovish stance, indicating ample room for reserve requirement ratio cuts and interest rate reductions this year. He noted that stabilizing bank net interest margins and resetting long-term deposit rates provide flexibility, and exchange rates should not constrain easing. Consequently, Barclays expects a 10 basis point policy rate cut and a 50 basis point RRR reduction in the first quarter to support front-loaded government bond issuance. December TSF flow reached RMB 2.208 trillion, beating market consensus of RMB 1.905 trillion but missing Barclays' forecast.