BEIJING -- Businesses and individuals in China are borrowing more again as financial authorities ease up on so-called shadow banks and encourage conventional banks to build up capital to boost lending to small and midsize businesses.
China's outstanding social financing -- a broad measure of credit -- came to 205 trillion yuan ($30.5 trillion) at the end of January, up 10.4% from a year earlier. The growth rate rose by 0.6 percentage point versus December to mark the first monthly increase since July 2017. Borrowing in January alone reached 4.64 trillion yuan, jumping 50% on the year.
The financial sector is now better able to support the real economy, said Ruan Jianhong, head of statistics at the People's Bank of China, the central bank.
The level of borrowing offers market watchers clues to the direction of an economy that has shown signs of slowing. Though the rise suggests that government stimulus measures may be working, Beijing's decision to put reform on the back burner raises concerns that the debt overhang the steps had been meant to address could grow further.
The financing rebound owes partly to a recovery in lending by shadow banks. The outstanding balance of three common types of off-the-books credit offered by banks increased by 343.2 billion yuan in January. Repayments exceeded new borrowing for 10 straight months through December 2018.
China began cracking down on shadow banks last year, fearing their opaque finances could conceal risk and trigger a financial crisis. At the time, the People's Daily, the main Communist Party newspaper, denounced shadow banks as "culprits" blocking the flow of money to the real economy.
That left local governments with less money for infrastructure spending and led to an increase in bankruptcies as smaller businesses ran into trouble, bringing on an economic slowdown.
PBOC Gov. Yi Gang apologized last November for the headaches the crackdown had caused the private sector. The following month, he even said shadow banks are a necessary complement to the conventional financial market. The increasing pace of borrowing in January reflects regulators' new permissiveness.
Conventional financing is also increasing. In January, new bank loans came to an all-time high of 3.23 trillion yuan, while corporate bond issues, after subtracting redemptions, quadrupled from a year earlier to 499 billion yuan.
Market watchers are paying close attention to the data to see if this trend continues. While January figures tend to be volatile due to the Chinese New Year, borrowing will be seen as healthy again if social financing continues to rise strongly in February and beyond.
The change in outstanding social financing is used to gauge where the Chinese economy is headed three to six months down the road. It closely tracks growth in nominal gross domestic product. If borrowing rises through the first quarter of 2019, the effects will be felt throughout the economy around summer -- the period when many economists predict that the Chinese economy will bottom out.
But although credit is flowing again, weaning borrowers off credit from the murky shadow banks while nudging them toward conventional bank loans or the bond market remains a long-term challenge.
Chinese financial authorities are encouraging banks to shore up their capital by issuing perpetual bonds, which carry no maturity dates. These can be counted as equity because they need not be redeemed if the issuer gets into financial trouble.
Bank of China, a leading commercial bank, issued about 40 billion yuan of perpetual bonds for the first time in January.
To increase investor trust in the bonds, the PBOC has introduced a mechanism that enables buyers to swap them for central bank bills. The first such exchange, involving 1.5 billion yuan in perpetual bonds, took place on Wednesday.
The central bank aims to promote the use of these instruments by regional and agricultural banks, which tend to be more involved in lending to small and midsize businesses.
The types of loans being offered remain a concern. Short-term bank loans are rising, while the medium- and long-term borrowing used to finance corporate capital spending accounts for a modest 40% of total credit.
Premier Li Keqiang warned on Wednesday that a sharp increase in short-term loans could lead to "arbitrage" and create risks to the financial system.