Loan growth in China rose rapidly in September, as did government bond issuance. This has set the trend for the remaining months of 2022. China's new yuan loan increased by CNY2.47 trillion in September, almost double the amount in August. At the same time, total social financing jumped to CNY3.53 trillion in the month from CNY 2.43 trillion in August.

We found government bond net issuance jumped by more than CNY5 trillion in just one month. The net increase in government bond issuance was only CNY 399.8 billion in July and CNY304.5 billion in August, and for 3Q22 the net issuance of government bonds increased to CNY5.91 trillion. And that means the net issuance of government bonds increased by CNY5.81 trillion alone in September.

In our view, this would help local governments experiencing financial pressures to push forward with completing unfinished residential projects and focus on infrastructure investments besides on Covid-19 testing.

We believe credit will grow fast with more government bond issuance to continue in 2022. This is seen necessary with strong corporate loans growth at a time where the economy is weak due to continuing Covid measures, the real estate crisis, and emerging weakness in external demand.

And we project the fiscal deficit as percentage of GDP could reach 6-7% in 2022.

Source: AmInvest Research - 12 Oct 2022