China's lending slows amid credit tapering

New data has showed that China's lending in 2013 moderated and the growth of broad money supply eased, triggering forecasts that credit tapering will continue in 2014.

China's new yuan-denominated lending stood at 8.89 trillion yuan (1.5 trillion U.S. dollars) in 2013, up 687.9 billion yuan, the central bank announced on Wednesday.

New loans denominated in foreign currencies hit 584.8 billion yuan in the 12 months, representing a year-on-year decrease of 331.5 billion yuan, according to Sheng Songcheng, financial survey and statistics chief at the People's Bank of China.

Total social financing, a measure of funds raised by entities in the real economy and a broad measure of liquidity in the economy, stood at 17.29 trillion yuan last year, up 1.53 trillion yuan from a year previously and a record high.

New yuan lending took about 51.4 percent of the social financing. This was the lowest amount in history and 0.6 percentage points lower than the previous year.

The narrow measure of money supply (M1). which covers cash in circulation plus current corporate deposits, rose 9.3 percent year on year to 33.73 trillion yuan.

The broad measure of money supply (M2). which covers cash in circulation and all deposits, jumped 13.6 percent to 110.65 trillion yuan in 2013, growing 0.2 percentage points fewer than in 2012, Sheng said.

Outstanding cash in circulation (M0) amounted to 5.86 trillion yuan, up 7.1 percent from a year earlier.

Last year, the net amount of cash put into circulation stood at 389.9 billion yuan.

China's foreign exchange reserves rose 509.7 billion U.S. dollars to reach 3.82 trillion dollars at the end of the year.

Bank deposits, in yuan and overseas currencies, rose to 107.06 trillion yuan at the end of 2013, up 13.5 percent year on year.

"The moderation in M2 and credit growth is in line with our view that credit tapering will continue in 2014," said Zhu Haibin, J.P. Morgan China Chief Economist, in an email.

Credit tapering could drag on economic growth via two channels, Zhu predicted.

First, China's economic growth has been largely driven by credit expansion in recent years, he said, historical evidence suggests that credit growth tends to lead gross domestic product (GDP) growth by two quarters.

Second, credit tapering has caused tighter liquidity in the interbank market. In the second half of 2013, interbank rates generally drifted upward and exhibited greater volatility, and the higher funding cost also affected the bond market as both government and corporate bond yields rose significantly, according to Zhu.

In 2014, interbank rates may continue to drift upward and seasonal volatility may persist, he added.

Sheng said 2014 will see the central bank continue to implement a prudent monetary policy, make appropriate preemptive adjustments, and use various management tools on liquidity to make monetary conditions "not too tight nor too loose."

Sheng vowed to actively guide shadow banking activities and monitor their risks so they can better serve financial activities and the real economy.

China has kept a proactive fiscal policy since late 2008, when the country unveiled a 4-trillion-yuan stimulus package to counter the impact of the global financial crisis. Its monetary policy has been prudent since late 2010.

China will publicize its annual economic performance data next Monday. The country set its 2013 growth rate target at 7.5 percent.