Aggregate financing declines in January

The aggregate amount of financing in the Chinese economy, including loans, bond and equity financing, was 956 billion yuan ($152 billion) last month.

That's a year-on-year decline of almost 46 percent, or 800 billion yuan, from the figure in January 2011, the People's Bank of China said on Friday.

New yuan lending in January saw a year-on-year decline of 288 billion yuan to 738 billion, accounting for 77 percent of the aggregate. Foreign currency-denominated lending in January also declined by 101 billion yuan.

Financing through corporate bond issuance declined by 57 billion yuan to 44 billion yuan, a 56 percent drop from a year earlier, while domestic equity financing fell 89 percent year-on-year, from 65 billion yuan to 8 billion yuan.

E Yongjian, an economist at Bank of Communications Co Ltd, said there are two main reasons for the declines.

"One is the reduced new yuan lending because of capital tension among banks and the ongoing strict control over credit by the government," he said.

"The other (reason) is slump in bank acceptance bills because of strengthened regulations of lenders' off-balance-sheet financing since the second half of 2011."

Outstanding bank acceptance bills declined by 336.9 billion yuan, compared with a year earlier.

"We notice that the January total financing within the economy is lower than the monthly average last year. However, new and entrusted loans are higher than the monthly average in 2011, although IPOs and corporate bond issuances tend to be lower than the monthly average last year," said Liu Ligang, head of Greater China economics at ANZ Banking Group.

Liu said the January data are highly sensitive to the Chinese New Year effect, when the country takes a seven-day holiday, and it doesn't mean financial conditions have tightened significantly.

"In fact, we have seen that money market rates are falling and capital inflow remains substantial."

"There will be a substantial change in total financing throughout the whole year, which will still remain at about 13.5 trillion yuan," said Li Wei, an economist at Standard Chartered Bank (China) Ltd.

He said there are signs that market liquidity is actually improving, such as the declining cost of bill-financing.

"Although new lending fell in January compared with previous years. Outstanding loans and other existing financing vehicles are still large enough to shore up the economy."

However, Li added that the central bank may need to make three or four cuts in the reserve-requirement ratio for lenders in 2012 to allow banks to lend more.

"We continue to think that the PBOC is in a 'wait-and-see' mode. Whether the PBOC will ease further by cutting the reserve-requirement ratio will depend on the outcome of the February purchasing managers' index, the Greek debt negotiations and February's consumer price index," said Liu.

He added that the ratio of total financing compared with GDP is basically back to the pre-crisis level and the aggregate financing amount will be just 0.5 percent higher than last year at most.

In a report posted on its official website on Wednesday, the central bank said that it will maintain an appropriate pace in lending and keep total financing at a "reasonable" level. It set a target of broad money supply growth, or M2, which covers cash in circulation and all deposits, at 14 percent for 2012.

According to Bloomberg News, Fan Jianping, chief economist at the State Information Center, said that Premier Wen Jiabao may announce a 7 or 7.5 percent 2012 target for economic growth during the annual National People's Congress in March.

"This means China has a higher tolerance for slower growth, and reduces the likelihood of a large-scale stimulus," said Zhang Zhiwei, chief economist for China at Nomura Holdings Inc.