BofAML: China Had No Credit Squeeze, Nor Monetary Easing

China’s credit data came in better than expected, with new loans rebounded to RMB1,050 billion in March from RMB645 billion in February. Market expectations were RMB1,000 billion.

Total Social Financing (TSF) jumped to RMB2,070 billion from RMB939 billion in February, against the market’s expectation of RMB1,800 billion.

China’s foreign exchange reserves rose by US$129 billion in the first quarter to US$3,950 billion at the end of March, after rising US$159 billion in the last quarter of 2013.

Investors appeared quite bearish after the release of low February credit data, but Bank of America Merrill Lynch says that investors should not extrapolate too much of February data because they were heavily distorted by the Lunar New Year holiday.

March’s rebound indicates that there was neither intended nor unintended credit squeeze. The rebound of bank loans and TSF does not suggest monetary easing either, says the bank in a report.

In fact, year-on-year growth of outstanding bank loans and TSF moderated to 13.9% and 17.1% respectively in March, from 14.2% and 18.1% in February.

By checking the breakdown of TSF, the rebound in March from February was mainly driven by new RMB loans, corporate bond, non-discounted bills and entrusted loans.

As expected, new trust loans in March are still weak: RMB95 billion in March versus RMB78 billion in February, comparing to an average of RMB153 billion per month in 2013.

This is due mainly to more caution on the part of investors post the near-default of one trust loan in January and the government’s proactive measures in controlling risks in the trust sector.

Despite the first bond default in early March, which created some panic in the financial markets, new corporate bond rebounded to RMB252 billion in March from RMB100 billion in February.

Still, BofA ML says it sees the impact of first bond defaults. Demand for riskless and high investment grade bonds improved and yields on those bonds also declined in the past few months.

Caishen.Co - Primary Data for China Secondary Investment and Stock Markets
Caishen.Co - Primary Data for China Secondary Investment and Stock Markets