China's Credit Growth Slows Despite Stimulus Efforts

In an unexpected turn of events, China's credit expansion in November fell short of expectations. This indicates a weakening demand for financing despite the government's strong bond sales and stimulus measures. According to data released by the People's Bank of China on Friday, total financing, covering a broad range of credit, increased by 2.34 trillion yuan. This figure was below the 2.7 trillion yuan anticipated by economists and lower than the 2.5 trillion yuan increase recorded in November of last year.

The amount of new credit extended by financial institutions in November was only 580 billion yuan, significantly below the forecasted 995 billion yuan. This slowdown occurred despite some modest signs of recovery in the Chinese economy in recent weeks, reflected in improvements in consumption and factory activity. However, the lack of strong policies to combat deflation has led to a general weakness in confidence in the economy.

Looking ahead, Chinese leaders, including President Xi Jinping, have indicated that they will adopt more aggressive stimulus measures to revive growth by 2025, particularly focusing on the consumption sector which has lagged behind industrial growth. This shift was underscored by a policy change announced on Thursday, marking the first transition to a "moderately loose" monetary policy in 14 years. This change signals that the central bank will continue to lower interest rates and the required reserve ratios for banks. Some economists predict these could be the deepest interest rate cuts seen in a decade. However, similar reductions made in the past two years have failed to boost borrowing demand.