China Economics Update: Accelerating credit growth in December supported by solid government bond issuance

China Economics Update Jan 2024Credit growth picked up for the third straight month in Dec, reflecting strong government bond issuance. Bank loans were softer than expected. Despite being on a moderating trend, medium- to long-term (ML) corporate loan demand remained resilient in Dec. Growth in household mortgage loans has hovered around recent lows, helped by continued policy relaxation in the property sector.

We expect government bond issuance to remain robust in the months ahead. Local governments began to front-load special bond issuance in early Jan. Government bond issuance will aid the economic recovery. We forecast TSF growth will edge down slightly to 9% YoY in 2024F.

We expect the PBoC will keep monetary policy accommodative. Persistently low core inflation points to soft domestic demand. The PBoC is likely to remain accommodative in order to maintain sufficient liquidity, facilitate government bond issuance, and support the domestic recovery. We expect two RRR cuts and one 10bp cut to policy interest rates.