Expect faster credit, more government issuance in China through 2022: ING

Government spending should continue to increase in order to provide enough job stability.

The trend of faster credit and more government issuance in China is expected to continue for the rest of the year, according to a report by ING. This, in turn, should help support Chinese banks’ new yuan loans.

China's new yuan loan increased by CNY2.47t in September, almost double the amount in August, according to data released by the central bank. Notably, total social financing jumped to CNY3.53 trillion in the month from CNY 2.43 trillion in the previous month

ING Greater China chief economist Iris Pang noted that the faster-than-expected loan growth in China is “quite surprising” given that loan demand should have weakened, even though the economy has picked up slightly from more relaxed Covid measures. 

“One thing of note is that amongst all the items in total social financing, government bond net issuance jumped. This should help local governments experiencing  financial pressures to push forward with completing unfinished residential projects, achieving the target of infrastructure investments this year,” Pang said. 

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“We also believe that  some of these funds will continue to go toward Covid-19 testing. If all the funds from government bond issuance will be spent this year, it will support GDP growth via government spending,” she said, adding that this also means that the fiscal deficit as percentage of GDP should have increased steeply to over 5.3% in September.

With these factors, ING expects that the trend of faster credit and more government bond issuance to continue for the rest of 2022.

“The economy is weak due to continuing Covid measures, the real estate crisis, and emerging weakness in external demand. This suggests government spending should continue to increase in order to provide enough job stability to ensure a soft landing,” Pang said.