BEIJING China's new bank lending slowed more than expected in December and broad money supply growth also eased, highlighting the policy tightrope the central bank must walk as it tries to contain risky debt levels without braking the economy too hard.
There is little sign of a sharp tightening in monetary policy, but rising money market rates and bond yields in recent months indicate the People's Bank of China is committed to removing excessive debt from the economy to head off potential financial risks.
But analysts also believe the central bank still needs to support economic growth, and Chinese leaders have pledged to keep growth steady in 2014 while driving long-term reform to put the economy on to a more sustainable footing.
"With inflationary pressures remaining modest, we expect the PBOC to keep the current monetary policy in place," said Sun Junwei, China economist at HSBC in Beijing, in a research note.
"Even so, we think the PBOC will still strike a balance between mitigating financial risks on the one hand, and stabilizing growth on the other."
Chinese banks made 482.5 billion yuan ($79.9 billion) worth of new yuan loans in December, lower than a forecast of 600 billion yuan and considerably less than the previous month's 624.6 billion yuan, central bank data showed on Wednesday.
But analysts believe the slowdown in bank lending also reflected seasonal factors, namely the need for lenders to hold more cash to meet year-end regulatory requirements.
Indeed, the Shanghai Securities News reported on Wednesday that the top four state banks stepped up the pace of new lending in January, handing over 320 billion yuan in the first 12 days of the month, versus 270 billion yuan over the same period a year earlier. The newspaper also cited sources saying new loans could top 1 billion yuan in January.
Broad M2 money supply rose 13.6 percent last month from a year earlier, the PBOC said, missing the forecast in a Reuters poll of a 13.8 percent rise and was below a 14.2 percent rise recorded in November.
"Slowing M2 growth in December showed the central bank's tightening measures had started to bite," said Jiang Chao, economist at Haitong Securities in Shanghai.
"But the money and credit data will have limited impact on policy direction. We expect there will be no big change in central bank's monetary policy in 2014," Jiang said.
Still, the rise in M2 surpassed the central bank's target of 13 percent, which the PBOC is seen maintaining over 2014.
The weaker-than-expected money supply and loan growth data deepened concerns about tightening liquidity in the mainland and China shares again underperformed most of Asia early on Wednesday, limiting gains in Hong Kong.
The data added to fears of further cash squeezes in China's money markets after regulators announced the resumption of initial public offerings of shares.
With a backlog of more than 700 IPO applications and about 50 approved so far, investors have frowned at the prospect of increased competition for limited funds with the resumption of A-share initial public offerings after a halt of more than a year. Larger offerings could lock up considerable amounts of capital. .SS
SHADOW BANKING TARGETED
New bank loans rose 8 percent in 2013 from the previous year to 8.89 trillion yuan, the central bank data showed, a modest slowdown from 10 percent growth in 2012.
China's total social financing (TSF), a broad measure of liquidity in the economy, was 1.23 trillion yuan in December, unchanged from November.
Over 2013, TSF grew 9 percent from the previous year to 17.29 trillion yuan. Growth slowed sharply from 23 percent in 2012, supporting the view that the central bank has been targeting riskier shadow financing.
The proportion of formal bank loans in the TSF fell to just over 50 percent in 2013 compared to over 90 percent a decade ago, as off-balance sheet financing soars.
Sheng Songcheng, head of the statistical department at the PBOC, told a news conference that the central bank will actively guide shadow banking activities to support the real economy, while working to head off potential risks.
"We will continue to implement prudent monetary policy this year and make appropriate fine-tuning and pre-emptive adjustments in policy to make monetary conditions not too tight or too loose," he said.
China's foreign exchange reserves, the world's largest, rose $157 billion in the fourth quarter to $3.82 trillion at end-2013, indicating sustained capital inflows.
The government is due to release fourth-quarter GDP data on Jan 20. Economists polled by Reuters forecast annual economic growth could slow to 7.6 percent in the Q4, putting 2013 growth on track for the weakest showing in 14 years.
Chinese leaders have pledged reasonable growth in 2014, and sources at top government think tanks told Reuters they expect a growth target of 7.5 percent, the same as for 2013.
($1 = 6.0412 Chinese yuan)
(Additional reporting by Koh Gui Qing and Xiaoyi Shao; Editing by Eric Meijer)