(MENAFN- Gulf Times) China's central bank has pledged to maintain a prudent monetary stance, but that may be getting harder to do as fairly weak credit data in January and a slowing economy prompt calls for more credit easing to spur growth.
Analysts said that the central bank's tight grip on so-called shadow banking € just as capital is flowing out of the country € have left the world's second largest economy short of the credit it needs.
On Friday, the People's Bank of China reported a rise in new bank loans in the economy. But overall credit € as measured by what is called total social financing € was weak compared with a year ago. The growth in broad money supply for the month was also at a record low and well below expectations.
"Today's data suggest that current monetary policy is not easing," said Ma Xiaoping, economist at HSBC, suggesting more monetary easing is needed.
New yuan bank loans by Chinese banks were 1.47tn yuan ($237.1bn) in January, up from 697.3bn yuan in December. Bank lending € held in check by the government's annual quotas € traditionally gets off to a fast start to the year as banks compete for good projects.
Total social financing, a broader measurement of credit in the economy that includes nonbank lending, came to 2.05tn yuan in January, up from 1.69tn yuan in December but well below the 2.6tn yuan of January 2014.
Economists said that non-bank financing € known as shadow banking € was roughly one-third its level in January 2014. That reflects ongoing efforts to put the squeeze on shadow banking, some of which is seen as loans to riskier parts of the economy. "We're seeing looser bank lending but a tightening on shadow banking," said Mark Williams, economist with Capital Economics. "I think policy makers are still focused on reining in overall credit," he added.
The reining in of non-bank credit comes at a time when the economy is struggling. China's economic growth slowed to 7.4% last year, the slowest pace in nearly a quarter of a century.
Trade data has been disappointing and inflation slipped to a five-year low in January. Analysts are openly talking of possible deflation.
China's central bank cut interest rates in November. This month it allowed banks to lend more by reducing the proportion of deposits they have to keep with the central bank € trimming what is called the reserve requirement ratio.
Analysts have said that data at this time of the year € just ahead of the Chinese Lunar New Year holiday € is often distorted. But they also said the central bank needs to be more flexible and that more monetary easing measures may be needed.
"A cut in banks' reserve requirement ratio is not enough to support the cooling economic growth," said ANZ economist Zhou Hao. "The central bank may need another cut in either interest rates or banks' reserve requirement ratio in the first quarter."
China's broadest measure of money supply, M2, expanded 10.8% at the end of January compared with a year earlier. This was the lowest level on record and compared with a 12.2% rise seen at the end of December.
In recent months, the central bank has also had to grapple with growing strains as more Chinese and foreign companies move money overseas, amid less positive expectations for the economy's performance this year. China had net capital outflows of $91bn in the fourth quarter of 2014.
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