(Yicai Global) March 13 -- China’s new loans and social financing all surged last month, largely due to the rebounding economy and the low base last year when the week-long Spring Festival holiday fell. But despite the better-than-expected growth, the loose monetary policy has not resulted in a jump in demand, according to the chief economist at Zhongtai Securities.

Social financing has increased in recent years, despite the economic slowdown, raising people’s hopes of a quick recovery, said Li Xunlei, who was assisted in his research by Xie Yu, macro-research assistant at Zhongtai Securities.

China’s newly-added social financing hit a historic yearly high in February at CNY3.1 trillion (USD458.3 billion), largely due to a big jump in Chinese yuan-denominated loans. Funds raised via government bonds in January and February also surged to a new high since 2017, at a cumulative CNY1.2 trillion, and a 41.6 percent leap from the same period last year.

But China’s consumer price index, a gauge of consumer inflation, still remains at a low level amid the backdrop of high inflation worldwide, which indicates that the problem of a twisted economic structure is intensifying.

New yuan loans came to CNY1.8 trillion (USD262.5 billion) last month and the corporate sector accounted for 88 percent of the total. Loans in the manufacturing industry as well as financing in the real estate sector, reinforced by policies, significantly supported corporate credit. After the Lunar New Year break in January, companies quickly got back to work and ramped up production as their expectations about investment improved.

However, of these new corporate loans, there has been rising demand for short-term ones, and that for medium and long-term loans slumped to 68 percent in February from 75 percent in January. This shows that the investment demand of business entities is not high.

High Savings

Meanwhile, companies made new deposits of CNY1.3 trillion in February, a 13-fold leap from the same period last year, indicating that they might not have much need to borrow.

New loans to the household sector amounted to CNY208.1 billion (USD30.2 billion) last month, with more short-term loans than medium- and long-term ones, as pent-up consumption demand is gradually unleashed.

But people are still keen to save. Household deposits swelled CNY1.1 trillion (USD160 billion) last month year on year. A survey by the People’s Bank of China in the fourth quarter last year also revealed that 61.8 percent of people intend to “save more,” the highest proportion ever.

Growth Gap

Growth in M2 broad money supply continued its upward trend in February to reach 12.9 percent year on year, a new high since April 2016. Historically, when the gap between M2 and GDP growth rates reaches more than 6 percent, there is usually huge monetary policy stimulus.

This year, monetary policy will be “precise and strong,” and it is unlikely that interest rates will be cut nor the reserve requirement ratio trimmed in the first half. Last month’s M2 growth will probably be the highest this year and the gap between the M2 and GDP growth rates will hopefully narrow during the year.

Li Xunlei is chief economist at Zhongtai Securities and Xie Yu is macro-research assistant at Zhongtai Securities.

Editor: Kim Taylor