More on China’s credit moonshot

From Goldman:

January’s credit data was exceedingly strong. Part of the demand for new RMB loans is from demand to borrow RMB and pay down USD debt, though banks may have also started to behave differently amid profit pressures. The temporary suspension of local government bond issuance also directed more borrowing to bank loans and other channels. Strong mortgage loan growth also contributed (household medium to long term loans increased RMB 478.3bn in January, vs RMB 292.4bn in December). The window guidance meeting held by the central bank around mid-January to rein in rapid credit growth apparently did not have much effect on the behavior of commercial banks. (January loan supply tends to be very front-loaded; one would have expected there to be a more significant deceleration of credit supply if the central bank was sending a really tough message, hence market expectations were only RMB 1.9 tn even when they knew it was already RMB1.7 tn in the first half of the month.) The pace of January credit growth is likely above the comfort zone of the central bank. Should the lending continue to be as strong in February, we think it would likely invite more forceful administrative controls.

M2 growth was not quite as strong as credit growth and its sequential growth was just modestly faster than December at a sub-trend level. Fiscal deposit change was more favorable than last January, which was abnormally tight, but still significantly tighter than usual (implying a smaller amount of net spending). FX position changes which affect M2 growth were probably another drag. Judging from FX reserve data, this drag was likely not larger than it was in December though reserve change data is particularly noisy and we cannot be sure about this at the moment.