Chinese bank lending brakes sharply in October, Beijing reaffirms zero-Covid

Bank lending in the People's Republic of China plumbed its lowest level in five years last month amid ongoing Covid-19 restrictions and a slump in mortgage demand.

According to the country's central bank, lending fell to 615bn yuan (£74.6bn) in October, down from 2.5trn yuan during the month before and the least since December 2017.

In particular, medium to long-term loans to households plummeted from 347bn yuan in the month before to 33bn yuan.

Short-term loans fell by 51bn yuan alongside.

Aggregate financing, a broader measure of financing made available, dropped from 3.5trn yuan in September to 908bn yuan (consensus: 1.6bn yuan).

The annual rate of growth in M2 money supply meanwhile slowed from 12.1% to 11.8% (consensus: 12.0%).

Overnight the Politburo Standing Committee, whose head is President Xi Jinping, reportedly called for more targeted measures to control the virus while reaffirming the necessity of sticking to the government's zero-Covid policy.

It also called on officials to do "a good job" on vaccination key segments of the population, according to Reuters.

In the background, Chinese authorities ordered mass testing of residents in Guangzhou, the capital of the export-centric province of Guangdong.

According to CNN, lockdowns had been imposed, contrary to some analyst chatter.

But CNBC reported that it was not yet clear to what extent business restrictions in the city would impact factories as many were located outside the regional capital.

On a related note, analysts at Citi said in a research note published on Thursday that it was "premature" for the China re-opening trade.

Vaccinations were a good lead indicator, they said, but went on to explain that they would take around 6 months to implement.

Hence, reopening would be "mostly" a late Q1/Q2 2023 event and "will take time".

"The fire drill that we have witnessed over the last few days is in line with the longer run betas to China risk and gives an indication how the eventual re-opening trade will play out."

Commenting on the latest figures, Duncan Wrigley at Pantheon Macroeconomics appeared to be thinking along much the same lines.

"We see little prospect of China escaping the liquidity trap until it moves away from zero-Covid policy and the property sector enters a recovery cycle," said Duncan Wrigley at Pantheon Macroeconomics.

"Both of these are likely to happen gradually over the course of next year and beyond. An important milestone is likely to be regional pilots to change pandemic measures, which could begin as soon as March 2023."

As of 1226 GMT, the US dollar was 0.12% lower versus the offshore yuan at 7.2652.