According to the latest data released on the 15th by the PBC, September's financial data rebounds considerably from August, and is generally higher than the market expectation. Ruan Jianhong, director of the Financial Survey and Statistics Department of the PBC, said on 15th that the overall sound financial data in Q3 is the result of the strong demand for funds in the real economy and the strengthened ability of the financial system to serve the real economy. 

The Consumer Price Index (CPI) nationwide rose 3.0% year-on-year in September, reaching a new record high in the recent six years. In response to the impact of inflation on monetary policy, Sun Guofeng, director of the Department of Monetary Policies of the PBC, said that maintaining price stability at home is one of the objectives of monetary policy, and that there is no basis for sustained inflation or deflation in China at present. However, we shall prevent the spread of inflation expectations to avoid a vicious circle. The PBC will pay close attention to the follow-up trend of CPI, PPI and other indicators in the future. 

September's financial data is generally positive 

Data shows that the balance of broad money (M2) was RMB195.23 trillion at the end of September, up 8.4% year on year, 0.2% and 0.1% higher in growth than that at the end of last month and the same period of the last year respectively. In September, the increase in social financing scale was RMB2.27 trillion, RMB255 billion more than the last month and RMB138.3 billion more than the same period of the last year. RMB loans increased by RMB1.69 trillion in September, an increase of RMB306.9 billion over the same period last year. 

Ruan Jianhong said that the overall sound financial data in Q3 is the result of the strong demand for funds in the real economy and the enhanced ability of the financial system to serve the real economy. China's economic fundamentals are sound and will remain sound over the long term, with tough resilience in growth, and strong demands of the real economy on capital. She also said that, according to a recent survey conducted by the PBC on credit demand in more than 300 prefectures and cities across the country, micro-subjects of real economy still register a strong credit demand, and 40% of the banks believe that the credit demand in Q4 will increase compared with the same period of the last year. In addition, the capacity of the financial system to serve the real economy is also strengthened. Since the beginning of this year, the PBC and other departments have taken the initiative to strengthen coordination, standardize the financial order while intensifying macroeconomic counter-cyclic adjustment, and dredge the channels through which the liquidity of the financial system is transmitted to the real economy. As a result, the relationship between supply and demand of funds has become more reasonable, and the funds invested in the real economy have increased. 

In response to the recovery of M2, Ruan Jianhong also said that the rebound in the growth rate of money supply stems from the PBC's commitment to prudent monetary policy and pursuit of the moderately tight policy. Since the beginning of this year, the PBC, together with relevant financial management departments, has made comprehensive use of a variety of policy instruments to enrich the sources of supplementary capital of banks, reduce the required reserve ratio of banks in due course, and enhance the ability of commercial banks to use funds, thus promoting the rebound of M2. 

Wang Qing, chief macro analyst at Golden Credit Rating International Co., Ltd., said the new social financing scale in September was RMB2.27 trillion, an increase of about RMB250 billion on a month-on-month basis and an increase of nearly RMB140 billion year-on-year. Proceeding from the sub-item, the main reason for the sharp increase in the new social finance of the current month is the significant increase in RMB loans. Despite of the tightening of real estate financing channels, the market is generally concerned about the trend of trust loans. However, according to this month's data, the negative growth of this indicator is not considerably larger than the last month, the overall contraction of off-balance sheet financing is basically the same as the last month, and evident improvement has been made over the same period of the last year. 

It is noteworthy that, since September 2019, the PBC has further improved the statistics of "corporate bonds" in "social financing scale", including "asset-backed securities of exchange corporate" as an indicator of "corporate bonds". With regard to this, Ruan Jianhong said that most of the asset-backed securities (ABS) issued on exchanges by subsidiaries of securities companies and fund companies are based on loans receivable from enterprises and loans from microfinance companies. Such ABS represents the financial support of the financial system to the real economy and is similar in nature to corporate bonds. 

Defining the standardized creditor's right assets is beneficial to the replacement of the successive products 

A few days ago, the PBC, in conjunction with various departments, planned to clarify and standardize the determining rules for creditor's right assets, to solicit suggestions publicly. Zou Lan, director of the Financial Markets Department of the PBC, said at the press conference on the same day that the determining rule is the supporting document of the new regulations on asset management, and the details follow the provisions of the new regulations on asset management, which are all within the market expectations and have a relatively limited impact on the market. 

Regarding the continuity of the original products, Zou Lan said that relevant financial institutions have been prepared since the release of the new regulations on asset management, the final implementation of determining rule on standardized creditor's right assets is conducive to the issuance of standardized products, and the market has reserved more inclusive and open space for the replacement of different products. 

In addition, notes should fall into the category of non-standard product as required by the new regulations on asset management, but financial institutions are trying to introduce standardized notes in order to achieve a smoother transition. 

Real estate loan growth slowed continuously 

The overall recovery in financial data is accompanied by further changes in its structure, indicating a further concentration of funds in the real economy and in areas where China has directed priority support. 

"In the first three quarters, RMB loans issued to the real economy increased by RMB13.9 trillion, an increase of RMB1.1 trillion year on year; and loans to enterprises increased by RMB8.2 trillion, an increase of RMB1.15 trillion year on year. This is an encouraging change, indicating that the support of funds to the real economy is strengthening", said Zhou Xuedong, head of the General Office of the PBC. 

Medium- and long-term loans to the infrastructure sector see faster growth, with the balance year-on-year growth reaching a high spot within the year at the end of September, according to the PBC data. The growth rate of medium- and long-term loans in the manufacturing sector has rebounded markedly, especially in the high-tech manufacturing sector, where rapid growth is maintained. Meanwhile, the growth rate of medium- and long-term loans in the service sector, excluding real estate, has increased obviously. 

However, the growth in real estate loans has been "squeezing". At the end of September, the balance of real estate RMB loans was RMB43.3 trillion, up 15.6% year-on-year, falling for 14 consecutive months. In the first three quarters of this year, real estate RMB loans increased by RMB4.6 trillion, accounting for 33.7% of the new RMB loans in the same period of the last year, 6.2% lower than the last year. 

In the first three quarters of this year, the proportion of newly-increased individual housing loans to all kinds of loans was 24.1%. Zhou Xuedong said, "This is a reasonable proportion. In the past, during the real estate boom, personal loans for purchasing houses grew very fast, even accounting for more than 50% of the total in some cities. And loans for the real estate and home purchase made up for more than half of the increase in bank loans. At present, the proportion has dropped to 24.1% across the board, which is a relatively reasonable level. From years of observation, the proportion around 25% is reasonable, while in most cases over the past few years, this figure was above 30%." 

Next year, the rectification of Internet finance will be basically completed. 

On the same day, the PBC also responded to the progress of the special rectification on risks in Internet finance launched in 2016. "Since last year, great progress has been made in the field of online lending, with a significant decline in the balance of loans and the number of people and institutions." Zou Lan noted. So far, other areas have been basically completed, and more importantly, it is necessary to prevent the relapse of the old issues and establish a long-term mechanism. 

The delayed implementation of the P2P filing system is attributable to imperfections in many online lending institutions, he said. According to the previous "three inspections" (self-inspection of institutions, self-discipline inspection and administrative inspection), most P2P institutions act as credit intermediaries, rather than information ones. "It is believed that the relevant rectification efforts will be basically completed by next year, and afterwards it will take a long time to build a long-term mechanism and resolve risks." 

The PBC pays close attention to the trends of CPI and PPI 

It was released on the same day that CPI in September showed a 3.0% year-on-year increase. Since the price level is also one of the important reference indicators, the market also pays close attention to its impact on the PBC's subsequent monetary policy. 

Sun Guofeng, director of the Department of Monetary Policies of the PBC, said that maintaining price stability at home is one of the objectives of monetary policy, and that there is no basis for sustained inflation or deflation in China at present. However, we shall prevent the spread of inflation expectations to avoid a vicious circle. The PBC will pay close attention to the follow-up trend of CPI, PPI and other indicators in the future. 

Sun pointed out that there are many indicators to judge inflation. "In addition to CPI, there are also core CPI, PPI and GDP deflators. In the light of monetary policy, all indicators shall be considered, yet now CPI is the most concerned around the world. CPI reached 3% in September, the PBC will also pay close attention to the trend of the CPI and PPI in the future." Sun said. 

It is also an important task of current monetary policy to reduce the financing cost of enterprises while maintaining stable prices. About how to strike a balance and bring into full play the role of monetary policy, Sun indicated that preventing inflation is mainly to stabilize expectations, and we should pay attention to changes in expectations, mainly by emphasizing the stance of monetary policy, requiring M2 growth to basically match nominal GDP growth, releasing a stable signal, and maintaining the stability of the deposit benchmark interest rate. The major way to reduce the financing cost lies in reform, that is, the mechanism set up in August. 

At present, the new LPR has been quoted twice in August and September, with the one-year LPR quotation at 4.25% and 4.20%, respectively, and the five-year one at 4.85%, which is lower than the previous LPR and benchmark interest rate of loans. "LPR's two quotations met market expectations, with a relatively stable financial market response and a positive social reaction." said Sun. At the same time, he said, the PBC is also working on the conversion of the pricing benchmark of existing loans. With increasingly more new loans with LPR and the promotion of the conversion of existing loans, it is a natural process for the benchmark interest rate of loans to become a thing of the past in the future. 

Institutions have divided opinions about the expectation of monetary policy trend in the next step. Li Chao, a chief macro analyst at Huatai Securities, predicted that the subsequent monetary policy will continue to follow the trends of economic growth and price, with little probability of reducing deposit reserve ratio and prudent operation of interest rate reduction. Wang Qing reckoned, in the context of mounting economic downward pressure, it is obvious that the policy is aimed at increasing monetary policy transmission and directionally supporting the real economy. There is a large space for reducing deposit reserve ratio and the interest rate in the future, and especially in manufacturing, private and small and micro enterprises, the targeted supporting monetary policies for manufacturing, private and small and micro enterprises will continue to develop. 

Source | www.xinhuanet.com, China.com.cn, finance.sina.com.cn