China credit expansion beats forecast on bond sale deluge

[NEW YORK] China’s credit expanded more than expected in March as the government accelerated bond offerings to help the economy offset the impact of surging US tariffs on Chinese goods.

• Aggregate financing, a broad measure of credit, rose 5.89 trillion yuan (S$1 trillion), according to Bloomberg calculations based on data released by the People’s Bank of China (PBOC) on Sunday (Apr 13). That compares with a median forecast of 4.96 trillion yuan by economists in a Bloomberg survey, and an increase of 4.83 trillion yuan in the same month a year ago.

• Financial institutions offered 3.64 trillion yuan of new loans in the month, Bloomberg calculations showed. The median forecast was three trillion yuan.

Bigger government bond sales were a key driver of aggregate financing last month as business demand for longer-term credit stayed weak. March is also traditionally a strong month for borrowing because banks tend to extend more credit at the end of each quarter to meet lending targets.

Net sovereign and local bond financing reached nearly 1.5 trillion yuan last month, the highest for any March since at least 2017, according to PBOC data. The bond deluge came after China vowed to front-load fiscal spending earlier this year on anticipation of looming trade tensions with the US.

China’s economy likely held up in the first quarter before the trade conflict between the world’s two biggest economies escalated. Newly added US levies on Chinese goods now stand at 145 per cent, well above levels economists say would decimate bilateral shipments, which were worth US$690 billion in 2024.

The impact of the punitively high tariffs is gradually kicking in, with US retailers suspending orders and halting shipments amid the deep uncertainty. At stake are millions of jobs in China’s sprawling manufacturing sector and Beijing’s ambitious goal of growing the economy by around 5 per cent this year.

The US late Friday announced it exempted smartphones, computers and other electronics from its so-called reciprocal tariffs, which could provide some relief for Chinese exporters as the exclusion covers more than US$101 billion in goods from the country. However, Trump’s policy flip-flop also underscores the massive uncertainty faced by the Chinese economy.

The PBOC has been pushing for lower borrowing costs for businesses and households. The weighted average rate on new loans extended to companies in local and foreign currencies was 3.3 per cent in March, 45 basis points less than a year earlier, the central bank-affiliated Financial News reported on Sunday. The rate on personal housing loans fell 60 basis points to 3.1 per cent, it said.

Short-term loans to businesses soared more than 40 per cent last month from a year earlier. But the willingness of companies in China to expand investment and production remained subdued, with corporate mid- and long-term loans staying slightly lower than the reading a year earlier.

Household mid-and long-term loans, a proxy for mortgages, rose from a year ago after steady home sales in February. But housing sales resumed declines last month, highlighting the country’s property market is yet to find a bottom.

The stock of broad money supply M2 expanded 7 per cent from a year ago, marginally below expectations. M1, a money supply gauge recently revised to include cash, household and corporate demand deposits, increased 1.6 per cent, the strongest in a year and beating the forecasts for a gain of 0.3 per cent. BLOOMBERG