Loan growth in China strengthened at the end of Q1, and encouragingly, the drivers of the
increase are broadening. Total social financing rose by 10.3% year-over-year in March, the
fastest increase since October. A big chunk of the increase in lending remains driven by
local governments front-loading funding for Q1 investment projects, which will show up
eventually in the industrial production and capex numbers. But we also see signs in the March data of a pick-up in lending to households, especially for new homes.
This suggests that the slowdown in the property sector is now finally easing, at least in top-tier cities, where growth remains strongest. Lending in second- and third tier cities remains lacklustre, due mainly to an abundance of supply relative to demand. We think evidence of broadening credit growth will support the wait-and-see approach adopted recently by policymakers, and further easing will come only if demand shows renewed weakness in the second half of the year.
Duncan Wrigley, Chief Economist