UPDATE 2-China Nov loan data points to gradual but bumpy recovery

Tue Dec 11, 2012 4:36am EST

* Nov new yuan loans 522.9 bln yuan, f'cast 550 bln yuan

* Total financing 1.14 trillion yuan, down from Oct

* Nov M2 up 13.9 pct yr/yr, lending up 15.7 pct

* Recovery seen on track due to supportive polices

By Aileen Wang and Kevin Yao

BEIJING, Dec 11 (Reuters) - China's new loans and money supply came in below expectations in November while the pace of overall financing eased, adding to signs that a recovery in the world's second-largest economy will be tepid and uneven even as global demand remains weak.

Still, analysts believe the government's pro-growth policies and favorable liquidity conditions are helping the economy slowly regain traction, as seen in a raft of indicators this week.

China's top leaders have pledged to continue policy fine-tuning in 2013 to ensure stable economic growth.

"We think monetary policy is still loose, and (authorities) will maintain the current loose stance for the next several months. That is strong enough to keep the economic recovery on track," said Zhang Zhiwei, China economist at Nomura in Hong Kong.

"We don't think the government needs to cut interest rates. Most likely they will just keep ongoing credit loose."

Chinese banks extended 522.9 billion yuan ($83.73 billion) of new local currency loans in November, the central bank said on Tuesday, below market expectations of 550 billion yuan but still outstripping October's 505.2 billion yuan.

The November new loan data - released on the People's Bank of China on its website www.pbc.gov.cn - showed that banks made 7.75 trillion yuan in new loans in the first 11 months of 2012, already exceeding 7.47 trillion yuan in all of 2011.

In a separate release, the central bank said M2 money supply grew a slower-than-expected 13.9 percent in November from a year earlier, while outstanding yuan loans in November rose by 15.7 percent from a year earlier, matching market forecasts.

"M2 has mirrored economic activity. We've felt all along that China wouldn't have a strong recovery, that there would be a lot of volatility along the way," said Xianfang Ren, senior analyst at IHS Global Insight in Beijing.

The weaker-than-expected credit data followed data on Monday that showed export growth slowed sharply to a much lower-than-expected 2.9 percent in November, underscoring the global uncertainties dragging on an economy which is showing otherwise solid signs of a pick up in domestic activity.

Data at the weekend showed both industrial output and retail sales rose in November at their fastest annual pace in eight months, reinforcing the view that growth is picking up in the fourth quarter from 7.4 percent in the third quarter, its weakest pace since the depths of the global crisis in early 2009.

BOND ISSUANCE

The PBOC cut interest rates in June and July and has lowered required reserve ratios (RRR) three times since late 2011 to free an estimated 1.2 trillion yuan ($190 billion) for lending as part of a year-long programme of policy fine-tuning.

It has since held off on more aggressive easing, opting instead to pump short-term cash into money markets to ease credit strains, a move analysts say reflects Beijing's concerns about a possible flare-up in property prices and broader inflation.

Meanwhile, the government has loosened the debt raising tab for local government financing vehicles (LGFVs) which have been under pressure to repay bank loans incurred under Beijing's 4 trillion yuan stimulus programme in 2008-09, analysts say.

That partly explains a sharp rise in China's total social financing aggregate, a broad measure of liquidity in the economy that covers bank loans, trust loans, bank acceptance bills, corporate bonds and equity financing.

New corporate bond issuance pulled back to 181.7 billion yuan in November from a record high of 299.2 billion yuan in October, central bank data showed.

"The slowdown in corporate bond issuance in November was likely temporary as it was driven mainly by a one-off tightening of credit standards by regulators - rather than insufficient funding demand," Qu Hongbin, China economist at HSBC, said in a note to clients.

"With local government financial vehicles still a dominant driver of total bond issuance activity (accounting for approximately 80 percent of corporate bond issuance so far this year) growth of corporate bond issuance should resume its trend upwards as we enter 2013."

Qu said recent momentum in total social financing growth looks set to support a GDP growth rate of at least around 8 percent in coming quarters.

Total social financing fell to 1.14 trillion yuan in November from 1.29 trillion yuan in October, but the aggregate is on course to hit a record of 15 trillion yuan this year, up 17 percent from 2011.

However, smaller and private firms are still facing limited access to credit and investment incentives, which have gone disproportionately to the state sector, particularly since the 2008/09 financial crisis.

New yuan bank loans accounted for only 55 percent of the country's total financial aggregate in November.

FILED UNDER: