Despite the forecast upgrade, we expect the economic rebound in 2023 to
be less vigorous than that in 2021, when China’s economy posted GDP
growth of 8.4%. This reflects in part ongoing weakness in the property
market, which showed little evidence of an improvement in sales or
housing starts in late 2022, despite a build-up of incremental policy
support. Residential floor space under construction was down by 46% yoy
in December 2022, pointing to continued project delays.
We also
expect net trade to be a drag on GDP growth in 2023, as a rebound in
overseas travel by Chinese consumers will lift services imports, while
export demand will be depressed by economic slowdowns in the US and
Europe.
The lagged effects of policy support for growth are
likely to be modest. There were only two small cuts to banks’ required
reserve ratios and policy interest rates in 2022. In line with this,
credit growth remains lacklustre, with Fitch-adjusted aggregate
financing to the real economy slowing to 9.4% in December 2022, from
10.8% in June 2022.
The direction of fiscal policy remains
uncertain ahead of the National People’s Congress in March. We do not
expect large consolidation this year, given the authorities’ recent
emphasis on growth and stability. On a Fitch-consolidated basis, we
forecast a budget deficit of around 7% of GDP in 2023, down from an
estimated 8% in 2022. This will still be well above its pre-pandemic
trend.
Announcements at the Congress may also clarify the
authorities’ other policy priorities as they move on from the urgent
challenges posed by the pandemic. We believe stabilising the recovery
will remain the key focus in the near term, but do not anticipate
aggressive macro-policy easing.
Fitch affirmed China’s sovereign
rating at ‘A+’ with a Stable Outlook in December 2022. At the time, we
stated that the recurrence of abrupt policy shifts that undermine
economic performance and keep growth volatility elevated could lead to
downward rating pressure, as could a sustained upward trajectory in
government debt/GDP."
Fitch Ratings-London/Hong Kong-08 February 2023: Fitch Ratings has revised its forecast for China’s economic growth in 2023 to 5.0%, from 4.1% previously, reflecting evidence that consumption and activity are recovering faster than initially anticipated after the authorities moved away from their “dynamic zero Covid-19” policy stance in late 2022. The large wave of Covid-19 infections that followed the authorities’ change of approach appears to be subsiding, based on public communications from health officials and improving mobility trends.
Many high-frequency indicators remain below pre-pandemic norms, but have recently rebounded in sequential terms. The services PMI jumped to 54.4 in January 2023 from 41.6 in December 2022, for example. The swift rebound from the Covid shock-wave means that activity in 1H23 will be stronger than we had forecast. Real GDP growth was also higher in 4Q22 than we had expected when our last forecast was published on 5 December 2022, so the recovery will come off a firmer base.
We believe the economic recovery will be primarily consumption-led, as households re-engage in activities previously hampered by health controls. Consumption contributed a mere 1pp to GDP growth last year, compared with a pre-pandemic average of around 4pp. The sharp acceleration in household deposit growth recorded over 2022 could support even faster “catch-up” consumption than we now anticipate. However, we believe abnormally high deposits from 2022 will not be deployed exclusively toward consumption, as they also reflect a reallocation of assets away from property and other investments that may revert in 2023."
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China Jan new bank loans jump more tha mmn expected to record 4.9 trln yuan
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By Judy Hua and Kevin Yao
BEIJING, Feb 10 (Reuters) - New bank loans in China jumped more than expected to a record 4.9 trillion yuan ($720.21 billion) in January as the central bank looks to kickstart a recovery in the world's second-biggest economy after the lifting of harsh pandemic controls.
A strong rebound in credit demand will be essential for an economic revival this year after harsh COVID measures and a crisis in the property sector dragged China's growth down to 3% in 2022, one of its worst rates in nearly half a century.
January's new loans more than tripled December's tally and exceeded analysts' expectations, according to data released by the People's Bank of China (PBOC) on Friday.
Analysts polled by Reuters had predicted new yuan loans would jump to 4 trillion yuan in January, from 1.4 trillion yuan in December and above the previous monthly record of 3.98 trillion yuan in January 2022.
Chinese banks tend to issue more loans at the beginning of the year to gain higher-quality customers and win market share, but the size of the increase spurred hopes that business and consumer confidence is improving rapidly after the anti-COVID curbs were suddenly lifted in December.
"China's credit data came in stronger than expected, suggesting that the credit support remains strong at the beginning of the year," Zhou Hao, chief economist at Guotai Junan International, said in a note.
"Overall, this is a positive credit report, and is likely to help the economy to rebound significantly in the first quarter of 2023. The next focus for the markets will be property sales, which are highly correlated to bank credit."
Analysts believe improved credit conditions, along with robust infrastructure spending and supportive policy measures, could boost economic growth to about 5% this year, even with a weaker global backdrop.
But they warn the recovery momentum could be uneven, requiring policy to remain supportive for some time.
Other data released on Friday showed China's January factory gate prices fell more than expected, suggesting that manufacturers are not yet running at full speed even after the end of the zero-COVID policy, while a car industry association said vehicle sales slumped 35% from a year earlier.
"Banks were under pressure to gear up loan issuance from the fourth quarter last year under policy guidance to boost credit supply. But actual demand is weak," said one person at a state-owned bank, who declined to be identified.
Manufacturing firms' appetite for more credit remained soft since they took on so many loans last year, he added.
Household loans, mostly mortgages, rose to 257.2 billion yuan in January from 175.3 billion yuan in December, while corporate loans soared to 4.68 trillion yuan from 1.26 trillion yuan.
The divergence between corporate and household loans underlined a faster recovery in corporate credit while the high jobless rate weighed on household confidence, said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
China's new household deposits rose to 6.2 trillion yuan in January from 2.88 trillion yuan in December. Analysts are closely watching that figure for signs that shell-shocked consumers are spending again after a year of lockdowns and job losses battered sentiment.
MORE MODEST EASING SEEN IN PIPELINE
Other key credit gauges also showed encouraging gains.
Broad M2 money supply in January grew 12.6% from a year earlier - the fastest pace since April 2016and above estimates of 11.6% forecast in the Reuters poll. It rose 11.8% in December.
Outstanding yuan loans grew 11.3% from a year earlier compared with 11.1% growth in December. Analysts had expected 11.0% growth.
The central bank has promised to make its policy "precise and forceful" this year to support the economy, keeping liquidity reasonably ample and lowering funding costs for businesses.
Analysts polled by Reuters expect the central bank to cut the benchmark lending rate - the one-year loan prime rate(LPR) - by another 5 basis points (bps) in the first quarter, and it is expected to offer more targeted support measures for sectors which are struggling the most.
Some analysts are also expecting more cuts in banks' reserve ratios (RRR) this year after two reductions last year, the latest in December.
Year-on-year growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, eased to 9.4% in January -- the slowest pace since January 2017 -- from 9.6% in December.
TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.
In January, TSF jumped to 5.98 trillion yuan from 1.31 trillion yuan in December. Analysts polled by Reuters had expected 5.40 trillion yuan.
($1 = 6.8036 Chinese yuan renminbi)
GRAPHIC - China's economic trendshttp://tmsnrt.rs/2iO9Q6a
GRAPHIC-China January bank lending hits record highhttps://tmsnrt.rs/3Ie9Jiv
(Additional reporting by Ziyi Tang; Editing by Kim Coghill and David Goodman)
((judy.hua@thomsonreuters.com; 8610-6627 1297; Reuters Messaging: judy.hua.thomsonreuters.com@reuters.net))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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