China's shadow banking lending fell to CNY17b

It's the lowest since October 2011.

According to Barclays, despite the volatilities in the headline credit and financing data, which have been common in Jan-Feb, total social financing was CNY3.52trn during this period, only 100bn less than the CNY3.62trn recorded last year.

A marked decline in the ‘shadow banking’ lending to a mere CNY17bn, the lowest since October 2011, was partly offset by a pick-up in bond financing to ~CNY100bn after staying subdued in the past two months.

Loan growth held up at 14.2%, while M2 growth edged higher to 13.3% in February. The Jan-Feb new loans averaged CNY982bn, higher than CNY846bn last year. Moreover, corporate loans came in solid with mid- to long-term loans accounting for 45%, the highest in a year.

Our base case look for CNY18.5trn TSF in 2014, compared with CNY17.3trn in 2013. We expect the PBoC to keep easier liquidity in H1.

Falling interest rates will support bond issuance. This will help to offset a slowing ‘shadow banking’ financing given expected more credit defaults and stricter regulations. We expect new loan to pick up to more than CNY9.5trn this year, compared with CNY8.9trn in 2013.

Overall, we judge the financing condition in Jan-Feb to be consistent with our moderating growth view (from 7% q/q saar to 6.6% in Q1).

While the worse-than-expected February exports and PPI deflation suggest some downside risk to our Q1 growth forecast, we do not think the slowdown is as sharp as feared by reading the headlines, and we judge growth will hold up at ~7.5% y/y in Q1. The Jan-Feb industrial production and investment growth to be released on 13 March will be key to watch.