Technical Updates - Amazon Web Services

CHINA COMPASS | 17 DEC 2014
Keep The Music Going




The market will be happy to see another MLF ticket to keep the music going for another 91 days
Gentle hand-holding by PBOC into the year-end shall allow M2 growth to wrap up 2014 at 12.5%
Credit growth rose to 13.4% y-o-y in November, the first clear sign of acceleration since June
Subtle change in the mix of new loans support the rationale to boost 2014 loans to RMB10 trn or higher
Monthly Change
RMB bn
Outstanding Balance (RHS)
RMB trn
1,500
3.0
1,000
2.5
"MLF"
"SLF"
500
2.0
"PSL"
0
1.5
-500
1.0
-1,000
0.5
-1,500
0.0
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
PBOC Lending to Banks Jumps on MLF Injections
Source: PBOC
The first batch of the three-month Medium-term Lending Facilities (MLFs) for RMB500 bn issued back in September is
coming up for maturity within these two days, so the PBOC has to decide to either roll the loans, offer something in their
place, or face a severe squeeze in year-end liquidity. A 50bp cut in overall banking RRR could certainly do the trick, but
the market will be happy to even see another MLF ticket to keep the music going for another 91 days.
Reserve Money
% y-o-y
Foreign Exchange
PBOC Assets
25
20
15
10
5
0
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
PBOC Balance Sheet Expands Steadily
Source: PBOC
The PBOC’s balance sheet stood at RMB33.9 trn as of end-October, up at a steady 7.9% annualized pace from a year
ago, which is comparable to China’s GDP growth. That proves China has not taken on FED or BOJ-style quantitative
easing, and the two rounds of MLF lending to the banking system in September and October have merely compensated
for the flat-lining foreign exchange reserve.
RMB bn
Monthly Change
Outstanding Balance (RHS)
12,000
10,000
8,000
6,000
4,000
2,000
0
-2,000
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Banks' Claims on Other Financial Sector
Source: PBOC
The liquidity support from PBOC given through the PSL and MLFs so far this year has allowed banks to cut back on their
dealings in the interbank market. In particular, the sum of claims to other financial institutions has remained basically
stable since mid-2014 after ramping up rapidly during 2013. Other financials include brokerages, insurance companies
and money market funds. Dissipating demand to source funds from the interbank market has translated into plunging
yields on Alibaba’s online money market fund in recent months.
http://www.offshore-inc.com
% y-o-y
M2 Reported
M2 Calculated
22
20
18
16
14
Estimated
12.5
12
10
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
M2 Growth Smoothened
Source: PBOC
With the gentle hand-holding by PBOC into the year-end, M2 growth is estimated to wrap up 2014 at 12.5%. That’s
broadly within the range of this year’s 13% policy target and an agreeable pace of deceleration from 13.6% for 2013. We
note the calculation of M2 has become trickier in recent months as the PBOC has begun making piecemeal revisions to
last year’s M2 balance since this September, smoothing out quarter-end and month-to-month variations. The above
charts show the discrepancies between released M2 figures and our calculation.
% y-o-y
Aggregate Financing to the Real Economy
RMB Loans
M2
22.0
20.0
18.0
16.0
14.0
12.0
10.0
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Feb-14
Jan-14
Dec-13
Nov-13
Oct-13
Sep-13
Aug-13
Jul-13
Jun-13
May-13
Apr-13
Mar-13
Feb-13
Jan-13
Dec-12
Nov-12
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
May-12
Apr-12
Mar-12
Feb-12
Jan-12
Aggregate Financing vs. RMB Loans vs. M2
Source: PBOC, REORIENT
The larger-than-anticipated RMB852.7 bn in new yuan loans (against a street estimate of RMB655 bn) has translated
into a 0.2 percentage point pick up in credit growth to 13.4% y-o-y in November, the first clear sign of acceleration since
June. This is important to note, especially amid slowing growth for M2 and Aggregate Financing to the Real Economy
(also known as TSF). This proves loan creation through China’s banking system remains a tightly guarded policy lever,
and there is no reason to doubt a recent market report that authorities are now targeting RMB10 trn in new lending for
the whole year, ahead of the previous general consensus of RMB9.5 trn. If so, December’s new loans will exceed
RMB900 bn, twice as much as a year ago.
http://www.offshore-inc.com
Hence, it is no surprise that the share of bank loans has climbed to more than 60% of aggregate financing thus far in
2014, compared with just over half in 2013. The share of funding obtained through corporate bonds and equity offerings
also edged higher as seen in the pie charts. In summary, these traditional and direct financing channels expanded at the
expense of “trust loans” and “undiscounted bankers’ acceptances,” two murky elements of the banking sector’s off
balance sheet activities. “Entrusted loans,” often regarded as a part of shadow banking finance, escaped heavy
regulatory suppression since they were in fact customized project lending funded by corporates with specific target
entities.
RMB bn
10,000
Medium to Long Term Loans
Finance Lease Loans
Short Term Loans
Loans - Bill Financing
9,000
1,098
8,000
7,000
4,197
≤ 1y
2,320
6,000
5,000
4,000
3,000
2,000
4,595
> 1y
5,356
1,000
0
-1,000
-84
2013
Changing New Loans Portfolio
2014 Jan-Nov
Source: PBOC
A subtle change has been occurring to the mix of new loans during 2014. Long-term loans take up roughly 60% of new
lending, up from half in 2013. As described further below, the bulk of that increase has been heading towards the
corporate sector.
http://www.offshore-inc.com
Short Term Loans 2014
Short Term Loans 2013
RMB bn
4,500
Bill Financing 2014
Bill Financing 2013
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
-500
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
Short Term Loans vs. Bill Financing (Year-to-date)
Source: PBOC
Conventional short-term bank loans have been compressed in paving the way to a substantial RMB1 trn jump in a
separate loan item of “bill financings” to-date, especially since July. That coincides with the five consecutive months of
outright contractions for “undiscounted bankers’ acceptances” which also witnessed a corresponding RMB977 bn
cumulated drop since July. This validates the view that banks are actively recognizing loans previously made through offbalance sheet transactions. Such operations to de-risk the banking sector support the rationale to boost the 2014 loan
quota to RMB10 trn or higher.
Households
Corporates
100%
90%
29%
80%
42%
70%
60%
50%
40%
30%
20%
10%
0%
Nov-14
Sep-14
Jul-14
May-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Mar-12
Jan-12
New Yuan Loan Distribution
Source: PBOC
Businesses are the biggest winner this year in securing new borrowings from banks, soaking up over 20% from
comparable periods last year. In another words, the split of new loans between corporates and households has now
risen to about 7:3 in recent months, up from 6:4 from a year ago. This demonstrates that banks are sticking to the State
Council’s mandate and providing an increasing amount of funding towards corporates, to either facilitate job creation or
to extend maturing loans, or both.
http://www.offshore-inc.com
RMB bn
3,500
M-L Term Personal Business 2014
M-L Term Corporate Loan 2014
M-L Term Personal Business 2013
M-L Term Corporate Loan 2013
3,000
2,500
2,000
1,500
1,000
500
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Corporate Loans vs Personal Business Loan (Year-to-date)
Nov
Dec
Source: PBOC
To drive home that point, a significantly greater portion of this year’s corporate loans is medium-to-long term in nature.
Securing such long-term loans in the 4Q has typically been very difficult in previous years, but 2014 is proving to be very
different as China pushes ahead infrastructure projects and answers calls to quench funding needs for businesses.
Meanwhile, personal business loans longer than 12 months are also growing steadily, on track with last year’s pace.
Residential Sales 2014
Residential Sales 2013
RMB bn
Consumer M-L Term 2014
Consumer M-L Term 2013
1,000
900
800
700
600
664
500
400
300
158
200
100
0
J-F
Mar
Apr
May
Jun
Jul
Aug
Sep
Residential Sales and Medium-Long Term Consumer Loans
Oct
Nov
Dec
Source: PBOC
Similarly, medium-to-long term consumption loans for households, a close proxy for residential mortgages, have also
been issued by banks at a comparable pace to 2013 despite the generally softer pace of home sales – by 10% -- for
2014. That means the ratio of mortgage loans to overall apartment sales has climbed to 31% in the first 11 months of the
year, from 26% for 2013. Once again, this proves banks are still enhancing support to home buyers, and yet, the
absolute level of leverage for the housing market remains extremely conservative.
http://www.offshore-inc.com
ANALYST
STEVE WANG
Research Director
Chief China Economist
T +852 2843 1464
[email protected]
Copyright © 2014 REORIENT Financial Markets Limited, All rights reserved.
This report and the contents hereof may not be sold, republished or transmitted in any form by any means, to any other party,
without the prior written consent of Company.
Legal Disclaimers
http://www.reorientgroup.com/disclaimer
You are receiving this email as a client or friend of REORIENT Financial Markets Ltd.
REORIENT FINANCIAL MARKETS LIMITED
Suite 1102-03
Far East Finance Centre
16 Harcourt Road
Admiralty
Hong Kong
T: +852 2843 1488
http://www.offshore-inc.com

Download Report