Chinese Banks’ Record Loan Issuance Amid Economic Slowdown in 2023

Summary

  • Chinese banks are predicted to have authorized net new yuan loans worth 1.40 trillion yuan ($195.55 billion) last month.
  • This is an increase from the 1.09 trillion yuan in November and nearly similar to the levels seen during the same period last year.
  • Forecasts for December suggest that total new lending this year would reach 22.98 trillion yuan, close to the economy size of the UK.
  • The economic recovery of the world’s second-largest economy continues to falter due to weak consumer and business confidence, local government debts, and a significant property crisis.
  • The People’s Bank of China (PBOC) is expected to introduce further easing measures to support the economy, specifically addressing deflationary pressures and the property slump.
  • Five major Chinese banks have decreased interest rates on some deposits, signaling a possible policy rate cut by the PBOC soon.

The Economic Climate in China

Despite a small uptick in lending activity, China’s economy continues to face challenges. After an insufficient post-pandemic boost, both consumer and business confidence remain low. Simultaneously, local governments are struggling with massive debts, and a severe property crunch is dragging down construction and investment operations.

The Role of the PBOC

The central bank, the PBOC, is expected to announce additional easing measures to prop up the ailing economy. Among the policy tools at its disposal are open market operations, reserve requirements, and the medium-term lending facility (MLF). These measures are deemed necessary to stimulate reasonable credit growth.

Looking Forward

In the face of these challenges, analysts are projecting China’s economic growth to stick to the government’s target of around 5% in 2023. If the government ups its bond issuance, this could further boost total social financing (TSF), which measures credit and liquidity levels.

Outstanding TSF at the end of November was 9.4% higher than the previous year, a slight increase compared with 9.3% at the end of October.

The finance ministry reported that local governments issued a net 3.86 trillion yuan in special bonds from January to November.

Overall, the TSF for December is projected to decrease to 2.20 trillion yuan, down from 2.45 trillion yuan in November.

In money exchange terms, $1 equals 7.1593 yuan, or alternatively, $1 equals 7.1592 Chinese yuan renminbi.

This economic landscape presents several implications for currency trading, particularly involving assets tied to the Chinese yuan or industries affected by China’s current economic conditions.

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