KFVG - 2023 To Be The Year Of Re-Leveraging In China
Summary
- China loans grew faster than expected in December, and government bond issuance continued to increase.
- Both reflect the urgency of government policy to support economic growth.
- As such, 2023 will be a year of re-leveraging.
By Iris Pang
Loans grew faster mainly from long-term corporate loans
New yuan loan increased CNY1400 billion, more than the consensus expectation of CNY1200 billion, in December 2022. This increase is special, as banks usually defer loan growth in the last month of the year to the first month of the next year.
The increase was mainly in the medium- to long-term corporate loans, at CNY1209 billion, higher than CNY737 billion in the previous month. This echoes the government policy to increase financing channels for real estate developers. Mortgages did not record an obvious increase in the month.
Quiet corporate bond in contrast with busy government bond issuance
Almost all the rest of the loan and credit data are not eye-catching. The exception is that government bonds, including local government bonds, continued to increase, while corporate bonds recorded a fall in net issuance.
Government bond net issuance increased CNY278 billion, while corporate bond net issuance decreased CNY270 billion. This contrast highlights that the government kept getting funding for fiscal spending in the last month of the year.
2023 will be a year of releveraging
In 2022, government bond net issuance increased CNY7.12 trillion, while corporate bond net issuance increased only by CNY2 trillion. This difference highlights the bad economic environment and deleveraging reform in 2022.
We expect this is going to change in 2023. Corporate bond issuance should climb when the economic environment improves. This does not squeeze out government bond issuance, as local governments would need funding for continual construction of uncompleted home projects and infrastrastructure investments.
Loan growth could be strong in 2023 if the government relaxes the "three red lines" financial leverage indicators for real estate developers.
In short, 2023 will be a year of re-leveraging.
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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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2023 To Be The Year Of Re-Leveraging In China