Seasonal rebound of finance in Oct., economic activities become active

The data released by the central bank yesterday shows that increment of social financing scale was 476.7 billion yuan in October, 852.3 billion yuan less than last month; RMB loans increased by 513.6 billion yuan in October, less than 1.05 trillion yuan in September, with seasonal rebound similar to the same period of last year. Meanwhile, capital activation rate, represented by“M1-M2” YoY growth, has greatly risen again for the fourth month, which means that economic activities begin to increasingly active.

Seasonal rebound of figures

Increments in social financing and RMB loans are obviously influenced by seasonal factors according to industrial insiders.

Lian Ping, chief economist of Bank of Communications (601328.SH), indicated that declines in both credit and social financing are mainly caused by the following factors: 1) financial figures are usually influenced by seasonal factors, including holidays; 2) the real economy is still under great downtrend pressure, and liquidity released by cuts in interest rates and reserve requirement ratio cannot rapidly meet the depressed financing demands, triggering decrement in actual inputs of credits and loans. 

Liu Ligang, chief economist of the Great China of Australia and New Zealand Banking Group Limited (ANZ), also believed that newly-added RMB loans greatly declined, possibly due to the National Day holidays.

The data showed that increment of social financing scale dropped by 472.8 billion yuan in October 2014 when compared with September 2014; and RMB loans increment declined by 308.9 billion yuan in the same period.

Liu also analyzed that newly-added RMB loans decreased by 34.7 billion yuan compared with last October, showing that demands for loans are insufficient, and greatly-increased non-performance loans make commercial banks very cautious on lending.

Based on RMB loans structure, medium and long term loans still account for the main part of newly-added loans in October, with greatly-rebounded note financing. Lian Ping believed that current stable growth still relies on medium and long term projects similar to infrastructure investment; short-term projects have not been fully activated, with great pressure on operations of enterprises.

The financial research center of Bank of Communications analyzed that generally there’s a lot of downward pressure on the economy. Enterprises’ financing demand activated very slowly and stabilizing growth still depend on the implementation of medium and long term projects designed earlier. But it is noticeable that financial data in October is impacted by the seasonal factor, and it is estimated that in November various data will see bounce.

M1 growth rate hit the periodic peak

In October, growth rate of M1 hit the periodic high, reading 14 percent year on year, the fastest growth rate since January 2013. Meanwhile, M2 posted a growth rate of 13.5 percent year on year, which is also the periodic peak. And net currency withdrawal from circulation in that month reached 112.2 billion yuan.

The financial research center of Bank of Communications analyzed that the sharp rise of M1 for that month is primarily attributed to low speed growth of M1 for the same period last year and explosive growth of M1 earlier this year. Overlapping of the two factors directly resulted in the rapid growth rate of M1 in October, and the rocket-fueled growth in the earlier stage will propel the year on year growth of M1 for a long time in the future. In respect of M2, based on the analyses on the implementation of multiple interest rate cuts and reserve requirement ratio (RRR) cuts announced by the central bank earlier and the utilization of other structural monetary policy tools, as well as the operation in the open market, the growth rate of M2 remained at around 13.5 percent is not at all surprising.

Deng Haiqing, global chief economist at Jiu Zhou Securities Co., Ltd., said that capital activation rate represented by “M1-M2” YoY growth has rallied for four months in a row and hit the peak since 2011. It is a sign that capital has transferred from fixed term to current term, which means business activities turned to be more active. In history, “M1-M2” YoY growth is a precursory indicator of GDP year on year growth, that is to say, GDP growth in Q4 may stabilize and recover.

Liu Ligang believed that upside risk of deflation may also lead the central bank to further reduce interest rate and RRR to loosen monetary policy. Besides, as the availability of credit channels relying on banking system is not sufficient, the government should proactively promote reform on financial market. And the government should encourage enterprises to raise fund through bond market, which could enable them to obtain long-term financing with fewer costs.