Photo: Feng Li/Getty Images
Chinese yuan loans surged to 1.01 trillion yuan ($160.1 billion) in March, up from 711 billion yuan the previous month, and way above consensus of 798 billion. All money and loan growth rebounded in March and that MO, M1 and M2 rose 10.6 per cent, 4.4 per cent and 13.4 per cent year-over-year respectively.
Meanwhile, foreign exchange reserves jumped by $124 billion in the first quarter to $3.305 trillion at the end of March.
Ting Lu, China economist for Bank of America-Merrill Lynch, says the data is very positive for markets even if it has been partially priced in. He thinks today’s data confirms three things:
- The worst is over and the economy began bottoming out in March.
- Loan demand is picking up. Low new loans in January and February mean higher new loans in coming months.
- Capital flight has been reversed.
- Policy easing will be continued, but don’t expect a big stimulus.
Lu said that the breakdown of new loans in March suggests a rebound in home sales. Mortgage loans jumped to 93 billion yuan in March from 33 billion yuan the previous month.
Earlier this morning the World Bank cut its 2012 Chinese GDP forecast to 8.2 per cent saying the key risks to the Chinese economy for now are the weak growth prospects of developed economies, and the ongoing correction in Chinese property markets. China has deliberately been restricting property lending for a while now.
The World Bank’s economics team added that while ongoing administrative efforts had helped cool property markets, they should be substituted by market-based measures that raise the cost of capital and expand the range of investment opportunities.
For now, the news of new loans should boost investor confidence that China’s economic slowdown won’t be as deep as previously thought. Meanwhile, investors will continue to watch and see if Beijing will cut banks’ required reserves and channel money to infrastructure projects and smaller companies. Lu projects that the Chinese economy will grow 8.6 per cent in 2012.