M UpdateChina Financials | Asia PacificHigher government bond issuance offsets slower loan growth in DecMorgan Stanley Asia Limited+Richard Xu, CFAEquity Analyst Richard.Xu@morganstanley.com +852 2848-6729 Beryl YangResearch Associate Beryl.Yang@morganstanley.com +852 3963-2224 Chiyao HuangEquity Analyst Chiyao.Huang@morganstanley.com +852 3963-4624 Morgan Stanley appreciates your support in the 2024 Institutional Investor All-Asia Research Team Survey. Request your ballot here. China FinancialsAsia PacificIndustry ViewAttractiveRelated reports: China Financials 2024 Outlook: Banks should outperform again in a more challenging 2024 (13 Dec 2023) China Financials: Stable TSF with Government Bond Swapping LGFV Debt and Loans (13 Dec 2023) Full-year TSF growth came in at 9.5% for 2023, with government bond issuance serving as a main support as loan and deposit growth moderated. We continue to believe TSF growth will moderate to 8-9% in 2024 amid an investment slowdown and LGFV tightening. 2023 TSF growth was 9.5%, a slight pickup from November, helped by government bond issuance as we expected: TSF added Rmb1.94tn in December, up Rmb634bn YoY. Government bond issuance at Rmb928bn served as a main support, up Rmb647bn YoY, due to low base in Dec 2022 and local refinancing bond issuance under the LGFV swap program. This could be evidenced in weak corporate bond issuance, which saw a net decrease of Rmb263bn in December, down Rmb396bn MoM. As we highlighted in our recent LGFV tracker reports, the incremental tightening on LGFV financing could last longer, likely to 1Q24, and broader than the market expects. In the meantime, new RMB loans added Rmb1.1tn in December, or Rmb335bn lower than Dec 2022, with a continued slowdown on the corporate side. Corporate loan growth continued to moderate despite year-end window dressing: Mid- to long-term corporate loan growth remained weak with new L/T corporate loans down 29% vs. Dec 2022 likely also impacted by LGFV tightening. Discounted bills increased at a higher rate than the same period last year, likely due to year-end window dressing to meet window guidance. Domestic corporate loan growth has decelerated continuously since May following much stronger than usual loan front-loading in early 2023. Household loan growth was supported by a recovery in consumption, despite still weak mortgage demand due to sluggish property sales in December.Household deposit growth further dropped to 13.8% from 14.9% in November on a gradual shift to other assets: This suggests that WMPs could gradually recover, benefiting retail-oriented banks. In addition, corporate deposit growth accelerated to 5.5%, which could be driven by 1) allocation of funds from government bond issuance for LGFV debt repayment, and 2) slowdown in investments by local SOEs during LGFV tightening. M1 growth stabilized at 1.3% but M2 growth further moderate...
