Focus topics

Credit growth records significant decline

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  • China’s newly added Total Social Financing (TSF) dropped to ¥1.31 trillion in December 2022, down 1.05 trillion compared to December 2021, and down from ¥1.99 trillion in the previous month. TSF thereby remained below market expectations of approximately ¥1.60 trillion. ​
  • This significant year-on-year decrease was mainly due to the large reduction in governmental loans. Firstly, the amount of direct government loans was reduced by ¥888.5 billion y-o-y.  ​
  • The amount of new corporate bonds also shrank by ¥653.5 billion, de facto consisting primarily of governmental debts as well via so-called “local government financing vehicles” (LGFV).​
  • China’s local governments created implicit governmental debts by setting up their own companies and issuing debts via LGFVs. These LGFV loans are classified as corporate debt in the official statistics rather than governmental debt. In December 2022, the newly issued LGFV bonds were ¥351.8 billion, down 47 percent compared to Dec 2021.​
  • The overall decrease in new credits signals that credit liquidity in the economy is declining, and the momentum for China’s economic growth remains weak thus far. It takes time for the economy to recover from the significant disruptions caused by the stringent covid restrictions, including in loan activities. ​
  • The Chinese government uses TSF as a liquidity measurement tool to formulate its monetary policy. The slower growth in TSF may push the central bank to take more active monetary policies in 2023 to accelerate the economic recovery.​

Sinolytics is a European research-based consultancy entirely focused on China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.


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