In the wake of recent financial statistics released for November, several key points emerge that indicate the current state and trajectory of China's economyFirstly, the growth rate of the broad money supply, or M2, has remained largely stable, while the reduction in the growth rate of the narrow money supply, termed M1, has continued to shrinkSecondly, the scale of social financing has shown steady growthLastly, the lending scale has maintained a reasonable pace of growth.

In a recent Central Economic Work Conference, the notion of a timely reduction in reserve requirements and interest rates was clearly articulated, demonstrating a high level of clarity regarding specific monetary policy approachesAnalysts and market participants are relatively optimistic that as positive signals are steadily released from various key meetings, factors favoring an economic resurgence will continue to accumulate

This is expected to lead to an improvement in effective financing demand across the marketLooking ahead, a moderately loose monetary policy will remain aligned with the overarching macroeconomic control strategies, with a focus on supporting consumption and enhancing the livelihood of the populace.

The narrowing decline in M1 continues to signify a stabilization of economic activityAs of the end of November, the M1 balance reached 65.09 trillion yuan, reflecting a year-on-year decrease of 3.7%, which is an improvement from last month's decline of 6.1%. The marginal rebound in the M1 growth rate suggests that as incremental policy measures accelerate, economic activity is stabilizing and social confidence is being restored, benefitting from heightened investor risk appetite within financial markets.

The People's Bank of China has announced it will adopt a newly revised statistical scope for narrow money (M1) starting from the collection of data in January 2025, which will include personal current deposits and reserves from non-bank payment institutions

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Analysts anticipate that with the recent series of stimulating policies being realized, M1 growth should stabilize, aligning more closely with the current economic fundamentalsThe adjustments made to M1 are expected to yield an enhancement in absolute values when compared to the previous measurementOverall, the growth of the new M1 format in 2025 is projected to surpass that of 2024.

Similarly, the M2 growth rate appears to have stabilizedAccording to central bank statistics, the broad money supply (M2) stood at 311.96 trillion yuan as of the end of November, reflecting a year-on-year growth of 7.1%. Experts suggest that 2023 marks the first year of stabilization post-pandemic, resulting in a notable acceleration of M2 growth, leading to a high base referenceWhen adjusted for base effects, the two-year average growth rate for M2 over the periods ending in November 2023 and 2024 shows an average of 8.6%, indicating that liquidity remains reasonably abundant.

Turning to social financing, the total stock of social financing reached 405.6 trillion yuan by the end of November, marking a year-on-year growth of 7.8%, which aligns closely with anticipated economic growth and price level targets

From January to November, the incremental social financing scale totaled 29.40 trillion yuan, maintaining an overall steady trend.

Moving on to lending, the outstanding balance of various RMB loans stood at 254.68 trillion yuan by the end of November, representing a year-on-year growth of 7.7%. This figure shows a slight retreat from the previous month’s growth rate of 8%. Analysts attribute the performance of November’s financial data to several factors, notably the handling of non-performing assets and the resolution of local government debt.

One authoritative expert remarked that the acceleration of non-performing loans’ disposal will enhance the stability of the financial system in the long runThis year, reform initiatives aimed at reducing financial risks within institutions have been progressing smoothly, and commercial banks are focusing on accelerating their disposal of non-performing assets

Data from the loan asset registration and circulation center indicate a significant increase in the volume and number of projects of non-performing loans listed for transfer since the third quarter compared to the same period last year.

The expert suggests this reduction in loans will ultimately lead to a decrease in the total outstanding loans, thereby estimating that November's nationwide non-performing asset disposal by financial institutions reached nearly 500 billion yuanMost industry experts agree that while the disposal of non-performing loans is merely a bookkeeping adjustment, it does not alter the fundamental lending relationships between banks and enterprises and does not have a direct impact on the actual operating activities within the real economy.

Notably, some non-performing loans were packaged and transferred for sale in November, leading to the overall write-off of these assets, which are not counted within the social financing statistics

As a result, this will have a certain impact on the growth rate of social financing while similarly not affecting the credit relationships in the real sectorFurthermore, there has been a notable intensification of local debt resolution efforts, which may prompt local governments to expedite debt refinancing and thus influence bank credit stock.

Recently, the central government introduced a comprehensive plan to address debt, increasing the special refinancing bond quota for local governments by an additional 60 billion yuanBeginning in 2024, this will be implemented over five consecutive years, allocating 800 billion yuan annually from newly issued bonds to replace hidden debtReports show the Ministry of Finance has already assigned new local debt limits to various regions, with several provinces already initiating their issuance processes, resulting in the total amount of special refinancing bonds issued nearing the annual target.

Research from market institutions indicates that financing platforms receiving these special funds are likely to repay their debts within approximately 10-20 days, with the majority of repayments consisting of loans, to avoid paying interest on both the bonds and loans

It is estimated that around 250 billion yuan in local debt replacement was completed in November, with a larger replacement scale expected in DecemberThese efforts are beneficial for optimizing banks’ asset structures and enhancing the quality of financial services to the real economy.

Experts within the industry also emphasize that the alleviation of debt pressures allows local governments to focus more on developing the real economyMeanwhile, for banks, the shift from loans to governmental bonds results in a net neutral impact on their assetsAlthough debt replacement might reduce banks' interest income, the risk weights for specialized local government bonds (20%) are considerably lower than those of loans (75-100%), thus reducing credit risk and capital consumption following the replacement.

As the Chinese economy continues its structural transition and upgrade, the optimization of lending structures is ongoing

November saw notable improvements within credit structures, particularly in the recovery of individual housing loansData from the central bank indicates that the outstanding balance of medium- to long-term loans to the manufacturing sector reached 13.87 trillion yuan, signifying a year-on-year increase of 12.8%. Loans to specialized, refined, and innovative enterprises totaled 4.25 trillion yuan, growing by 13.2%, while inclusive micro and small loans reached 32.21 trillion yuan, with a year-on-year increase of 14.3%—all exceeding the respective growth rates for loans overall.

Demand for credit in the technological innovation sector is increasingly being tapped intoResearch indicates that commercial banks are actively seeking out potential credit needsFor example, in Anhui Province, taking advantage of the establishment of the Hefei Science and Technology Innovation Financial Reform Pilot Zone, efforts have focused on addressing the core issue of mismatched credit risk and return for tech enterprises

An innovative "Joint Growth Plan" service model has been introduced through a combination of loan contracts and medium- to long-term strategic cooperation agreements, providing financial services throughout the corporate lifecycle to stimulate breakthroughs in technological innovation and industrial transformation.

Meanwhile, personal loan stability has seen improvement, primarily due to the recovery in personal housing loansRecent data shows that the volume of personal housing loans in October surpassed 400 billion yuan, with a noticeable reduction in early repaymentsThis shift indicates that the proportion of early repayments in relation to the total volume of personal housing loans has dropped significantly compared to the levels before the implementation of the recent incremental policies in August.

The real estate market is exhibiting promising changes, marked by marginal improvements in market transactions

For the first time in over a year and a half, the year-on-year growth in the transaction volume of commercial housing in 30 major cities turned positive as of November, and transaction activity has remained relatively robust into DecemberThis correlation between financial data improvement and real estate market activity reflects a growing recovery in both the market itself and consumer confidence.

Experts anticipate that effective lending demand will gradually be unleashed as a result of the concentrated rollout and implementation of a series of incremental policiesOverall, the market is forecasted to experience further enhancements in effective financing demand, with financial resources redirected towards critical strategies, key fields, and vulnerable areas, thus bolstering financial support for the high-quality development of the real economy.