Ping An Digital Economic Research Center (DERC)

Ping An - DERC

Ping An Digital Economic Research Center (DERC) utilizes more than 50 TB of high frequency data points, more than 30 years of historical data and more than 1.5 billion data points to drive research on the “AI + Macro Forecast” and provide insights and methods towards precise macroeconomic trends. 

Ping An DERC is a research center for Ping An Insurance (Group) Company of China, Ltd. (“Ping An”) is a world-leading technology-powered retail financial services group. With over 204 million retail customers and 534 million internet users, Ping An is one of the largest financial services companies in the world.

Ping An Digital Economic Research Center

Zheng Zeng

Macroeconomics

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<p><strong>Loose Credit? A Sense of Bitter Reality</strong></p>
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<p>On June 1, The People's Bank of China (PBOC) stepped up efforts to loosen credit with the aid of innovative monetary policy instruments, further confirming the direction towards a looser monetary policy. Will such policy trigger a new round of credit expansion? This paper studied local officials and sought to reach a conclusion that can be relatively long lasting.</p>
<p>Why did we analyse local officials? This is largely due to our assumption that the time is not yet ripe for PBOC to loosen monetary policy without a target. Consequently, the credit cycle should respond to the local political cycle. Having retrieved and studied data on all governors and party secretaries of mainland China's 31 provinces and municipalities since 1978, we found:</p>
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<p>Local credit supply and the tenure of provincial governors and provincial party secretaries are in an <strong>inverted U-shaped relation</strong>. Local credit supply grows most rapidly when the local official serves for about three years.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/159/527/original/%E6%BC%94%E7%A4%BA%E6%96%87%E7%A8%BF1.png?1600305617" class="editor-image img-responsive" data-smartkarma-image-id="159527"></figure>
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<div>A leadership transition of local officials is taking place nationwide at the moment. In addition, <strong>credit growth brought by incumbent officials</strong> is starting to slow down, which will likely pressure the growth of credit.</div>
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</ol>
<div>Data in the balance sheet of PBOC also points to a slowdown in credit growth in H2. Hence, we think it is difficult for credit growth to further increase in H2.</div>


Loose Credit? A Sense of Bitter Reality

On June 1, The People's Bank of China (PBOC) stepped up efforts to loosen credit with the aid of innovative monetary policy instruments, further confirming the direction towards a looser monetary policy. Will such policy trigger a new round of credit expansion? This paper studied local officials and sought to reach a conclusion that can be relatively long lasting.
Why did we analyse local officials? This is largely due to our assumption that the time is not yet ripe for PBOC to loosen monetary policy without a target. Consequently, the credit cycle should respond to the local political cycle. Having retrieved and studied data on all governors and party secretaries of mainland China's 31 provinces and municipalities since 1978, we found:


Local credit supply and the tenure of provincial governors and provincial party secretaries are in an inverted U-shaped relation. Local credit supply grows most rapidly when the local official serves for about three years.



A leadership transition of local officials is taking place nationwide at the moment. In addition, credit growth brought by incumbent officials is starting to slow down, which will likely pressure the growth of credit.


Data in the balance sheet of PBOC also points to a slowdown in credit growth in H2. Hence, we think it is difficult for credit growth to further increase in H2.

Mismatch Between Financial and Political Cycles - Be Alert to the Risk of a Credit Cycle Recession