Chinese credit growth ticks higher in October but rate of money supply increase slows

Lending growth in the People's Republic of China ticked higher last month, but the details of the latest figures attested to cooling domestic demand even amid increased fiscal stimulus.

According to the People's Bank of China, aggregate financing more than halved from 4.12bn yuan in September to 1.85bn yuan come October (consensus: 1.95bn).

However, in year-on-year terms total credit growth accelerated last month by one tenth of a percentage point to 9.4% amid higher government bond issuance.

That was driven by the sale of special refinancing bonds used by local authorities to clear hidden debts and accounts receivables, said Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics.

M2 money supply growth meanwhile was unchanged at an annual rate of 10.3%, although M1 growth dipped from 2.1% in September to 1.9% (consensus: 2.5%).

"The cooling in M1 growth is an indication that domestic demand is cooling, after a boost over summer, when people were out spending on eating, tourism and leisure services," Wrigley said.

Net long-term household loands meanwhile dove from 544bn yuan to 70.7bn as home sales ebbed in the wake of debt issued at developers Evergrande and Country Garden.

"[...] The PBoC will probably hold off from policy rate cuts in the rest of the year, given the recent bout of pressure on the yuan and large capital outflows, exacerbated by the yield gap between U.S. Treasuries and Chinese government bonds.

"Policymakers are likely hoping that the fiscal stimulus will help buttress private sector confidence in the economic outlook, though recognising that repairing sentiment will take time."