China : September new loans rebound while TSF decelerates

September new loans rebounded to RMB 789.7bn, while total social financing edged down. M2 growth also cooled to athree-month low at 14.2%y-o-y. Such a pace of credit growth is sufficient to support an over 7.5% GDP growth, in ourview. Despite a spike of CPI, overall inflation still remains moderate, leaving rooms for the PBoC to maintain the statusquo of the current policy stance.

    Facts- New lending rebounded to RMB 789.7bn in September from RMB 711.4bn in August, higher than market expectations ofRMB 650bn.

    Outstanding loan growth edged up to 14.3% y-o-y in September from 14.1% y-o-y in August. The rebound was mainly ledby loans to corporate sectors, which surged to a three-month high of RMB434.8bn in September from RMB 373.2bn in July.

    Within this, short-term loans rebounded to a three-month high of RMB 335.2bn from 146.4bn in August, while mid-long termloans increased by RMB 14.5bn to RMB 245.7bn.

    - Total social financing (TSF) eased a little bit to RMB 1400bn in September from RMB 1568.7bn in August. Non-loanfinancing reduced by RMB 247bn to RMB 610bn in September, due to shrinking bank acceptance bills (RMB -7.74bn vs.

    RMB 304.5bn in August).

    - Broad money supply (M2) growth slowed to a three-month low of 14.2% y-o-y in September from 14.7% y-o-y in August,but higher than market expectations (Bloomberg: 14%y-o-y), reflecting a slowdown of M1 (8.9%y-o-y vs. 9.9% y-o-y inAugust) and deposit growth (14.6% y-o-y vs. 14.9% y-o-y in August).

    - Foreign exchange reserves rose to USD3,660bn from USD3,500bn by the end of 2Q, suggesting an accelerating net increaseof USD 160bn in 3Q compared with USD57.4bn in 2Q amid a renewed wave of RMB appreciation.

    Implications

    The rebound of bank lending is largely in line with historical trends, as banks tend to lend more at the end of a quarter in orderto boost their performance evaluation. Monthly average of TSF was RMB 1484bn during August-September, compared withRMB 1329bn in 2Q and RMB 1314bn in 2012. This, combined with likely accelerating capital inflows as suggested by biggergains in FX reserves, suggests that overall credit condition remained accommodative.

    The increase in corporate loans, which was mainly driven by short-term lending, and the widening gap between M1and M2 indicated that enterprises are still cautious about making new investments. It means China's growth recoverywon't be smooth and this calls for Beijing's continuous policy support. With inflationary pressures manageable andwell below the PBoC's 3.5% annual target (please refer to: URL: https://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=8UsKXgxJKw&n=390109.PDF) , Beijing has room to keep monetary conditions relatively accommodative.

    Bottom line: Monetary conditions remained relatively accommodative, which is supportive for a gradual growth recovery.