Economists see credit supply rising

The People's Bank of China, the central bank, is expected to increase credit supply to key areas in the second half of this year, in order to hedge risks of economic slowdown－and heightened credit does not constitute massive monetary easing, economists said on Thursday.

Stabilizing money supply, as well as "structurally" easing credit in some targeted areas, could be the central bank's key policy direction in the second half, Lou Feipeng, a senior economist at Postal Savings Bank of China, told China Daily.

The PBOC is likely to further ease credit norms and strengthen financial supports for small and micro enterprises, scientific and technological innovations, and projects or programs dedicated to rural revitalization, green development, and advanced manufacturing.

But, credit supply for the real estate sector will likely be constrained, Lou said.

In terms of supporting regional development, the PBOC may also adopt structural credit easing, which could be similar to providing 200 billion yuan ($30.88 billion) of relending to support regional development in the first half, Lou said.

Sun Guofeng, head of the PBOC's monetary policy department, said earlier at a media conference that in the second half, the growth rates of money supply and total social financing will be in accordance with the growth pace of nominal GDP.

In the second half, credit supply will seek to support the green development of medium-sized and small enterprises and technology innovation, in order to ensure social financing costs stay relatively lower, said Sun.

To achieve this goal, the total social financing growth should be at 11 percent or above, as the nominal GDP may rise 13 percent year-on-year, said Ming Ming, a senior analyst with CITIC Securities.

In July, the outstanding total social financing growth edged down to 10.7 percent from 11 percent in June, PBOC data showed on Wednesday. It also indicated that new renminbi-denominated loans slumped to 1.08 trillion yuan last month from 2.12 trillion yuan in June.

The PBOC's money and credit data in July, which were down, surprised the market, said Lu Ting, chief economist in China at Nomura Securities. He attributed lower data to the drag from Beijing's tightened measures for property financing and weaker-than-expected government bond issuance.

To counteract any possible more notable slowdown in the second half, economists from Nomura expect Beijing to speed up fiscal spending and government bond issuance, and fully tap the remaining 4.3 trillion yuan of its bond net financing quota for the remaining five months of this year, and monthly average net government bond financing could be even higher than 1 trillion yuan in August and September.

According to an estimate by the Chinese Academy of Social Sciences, the non-financial corporate sector's leverage ratio declined by 6.4 percentage points to 158.8 percent at the end of June, due to tighter regulations on local government bond issuance.

"The leverage level may no longer be a factor to constrain credit expansion. Looking ahead, the credit policy will likely be stable, but we wouldn't rule out a new round of credit easing cycle to stimulate economic growth," said Ming of CITIC Securities.

As policy continues to support the financing of the real economy and the issuance of local government bonds, the debt amount of the non-financial corporate sector and the government sector still has room for growth, which will drive up total social financing in coming months, he said.

Following the 50 basis points reserve requirement ratio cut that became effective in mid-July, some experts still forecast another RRR cut by the end of this year. It is likely to be a targeted cut.