China is once again awash with new credit.
HSBC’s Monetary Conditions Indicator, which measures how much and how cheaply new credit is created, shows conditions eased in January.
The index, compiled by HSBC analysts led by Julia Wang, jumped from a reading of 3.4 in December 2015 to 6.4 for January 2016.
It shows that policies to support the Chinese currency are working and making it easier for companies to refinance their international loans.
The largest contribution came from the real effective exchange rate.
New yuan loans came in at a record-high of RMB 2.5 trillion while total social financing also came in above consensus at RMB 3.4 trillion.
While lending improved across the board, corporate loans saw a particularly sharp rise, possibly due to Chinese corporates borrowing in RMB to replace foreign currency debt amid exchange rate fluctuations.
And here’s the chart:
It shows monetary conditions as loose as at any time in the past two years. China has a huge corporate debt pile, but the day of reckoning for paying this off is looking further away.
It suggests that domestic policies, such as injections of liquidity from the central bank, are compensating for tightening conditions outside of China. And it’s not only companies that can get access to cheap loans.
Here’s HSBC again:
Housing lending improved too, as the demand for mortgages rose amidst further easing of mortgage policies. Finally, there is also a seasonal factor to consider, as lending is typically strong in January as banks front-load their full-year lending targets.
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