China flooded the market with credit in March as the world’s second-largest economy emerged from draconian lockdown measures imposed in late January and February to stop the spread of COVID-19.
Total social financing last month was 5.15 trillion yuan, a full 2 trillion ahead of estimates and the highest monthly total on record.
New yuan loans, meanwhile, were 2.85 trillion, more than 1 trillion more than consensus was looking for and near the top end of the range. The print suggests financial institutions in China offered more loans last month than any March in at least 18 years.
Although China has generally refrained from the type of “all-in” monetary stimulus witnessed across the western world in the wake of the coronavirus crisis, the PBoC hasn’t been idle.
China completed a round of easing on February 20, slashing both loan prime rate (LPR) tenors, with the one-year cut by 10bps to match an identical cut to the medium-term lending rate and OMO rates earlier that month. Although LPR (the de facto benchmark) was held steady last month, on March 29 China delivered a 20bps cut to the 7-day repo rate, setting the stage for a similar-sized LPR cut in April.
PMIs – which tumbled to record lows in February – bounced back sharply in March, while lagging indicators (e.g., industrial profits, retail sales, industrial production and fixed investment) continue to betray the severity of the virus-inspired slump.
Although March’s credit data clearly suggests policy is nudging things in the right direction, there’s no escaping the disaster that Q1 most assuredly was. The GDP figures should reflect the malaise via an unprecedented plunge in total output.
Shadow banking appears to have rebounded in March as well (looking at the internals of the financing numbers), and M2 growth was 10.1% YoY, the swiftest pace in quite a while.
Meanwhile, inflation slowed in China last month, as demand suffered from the lockdown measures and the inexorable rise in pork prices subsided a bit. The CPI index rose 4.3% on year, well off the seven-year highs hit in recent months. Pork prices rose “just” 116.4%, far better than February’s ridiculous 135% jump.
Ostensibly, slower consumer price inflation gives the PBoC more room to ease, and another turn for the worse in factory-gate deflation (PPI was -1.5% in March) underscores lackluster demand and thereby the need for more policy support.
Remember, PPI deflation is bad news for industrial companies, and the epidemic did not help matters.
