China’s shadow banking industry staged a comeback in December as equity investors and local governments contributed to a surge in credit:

Shen Jianguang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd said:

  • “This highlights the dilemma for the PBOC: the real economy is still weak, and loan demand is weak, but speculative activity is rampant in the stock market, and local governments need funding”
  • “I believe the PBOC will further postpone rate and RRR cuts, and instead will resort to targeted measures of injecting liquidity”

Lu Ting, Bank of America Corp.’s head of Greater China economics in Hong Kong:

  • The contrast between new yuan loans and aggregate financing “shows that financial liquidity is not sufficient to support economic activity”
  • “IPOs have been active, and shadow banking is reviving”


More from the Wall Street Journal (not gated):

  • Bank loans came in below expectations, with a net increase of 697.3 billion yuan ($113 billion) on the month
  • But so-called “shadow banking” – such as company-to-company lending, loans issued by trust companies and bankers’ letters of credit – rebounded
  • That represents a reversal of the recent trend, in which off-balance-sheet financing had been declining
  • Total social financing, the broadest measure of credit creation, was the highest since June, at 1.69 trillion yuan
  • Overall, the December credit data continued to suggest a shift towards more accommodative credit policy

And, from Shuang Ding, Minggao Shen and Serena Wang, Citi:

  • The conditions for a rate cut are becoming ripe