In the face of an ever-evolving global economic environment, concerns about sustained growth have prompted governments and financial institutions to adopt new strategies aimed at solidifying the foundations of their economiesThis shift is likely to transition from merely increasing liquidity and related financing avenues toward enhancing actual demand within the marketAs we delve into the details from the past quarter, the signs indicate that a rebound in economic activity may be on the horizon, suggesting that there’s no need for undue pessimism.

In the first quarter, a staggering 12 trillion yuan in new social financing was recorded, marking a year-on-year increase of 16.8%, a figure that stands out as one of the highest in recent yearsNotably, government bonds accounted for a remarkable portion of this growth, with an incremental increase of 9,215 billion yuan

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This alone contributed to over half—53%—of the total rise in social financing, underscoring the government's pivotal role in stimulating economic activity through structured financial instrumentsFurthermore, the amounts lent through RMB loans and corporate bonds followed closely behind, both contributing substantial sums of 4,292 billion yuan and 4,020 billion yuan respectively, allowing the growth of social financing stock to stabilize and recover at a rate of 10.6%, a growth of 0.3 percentage points since the end of 2021.

An evident strategy by the government has been to expedite bond issuance, with over one-third of special bonds being released in the first quarter alone, nearly exhausting the advanced quota for such bondsThe financing from government bonds reached 1.58 trillion yuan, significantly higher than the mere 660 billion yuan noted during the same period in 2021. This advancement primarily stems from the accelerated issuance of special bonds, which hit a remarkable 1.25 trillion yuan in new securities, making up approximately 34.3% of the new quota available

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This is a substantial leap from the three-year average of around 21% for the first quarter issuanceSuch a proactive move has left only about 14% of the newly allocated special bond quota available as of December 2021.

Looking at the corporate sector, the demand for loans has demonstrated a marked increase; however, the structural aspects remain in need of adjustmentsIn the first quarter, corporate loans surged to nearly 7 trillion yuan, signaling an all-time high, predominantly driven by short-term loans and note financing, which collectively contributed around 3 trillion yuanYet, there’s an observable decline in medium to long-term loans that dropped by 5,200 billion yuan to about 4 trillion yuan, hinting that there’s still room for improvement in terms of actual financing needs from the real economyMeanwhile, residential loan activity has notably fallen, with both short-term and medium to long-term loans showing declines likely due to weakened housing market activity and consumer spending patterns.

In light of these developments, one might wonder where the capital has been predominantly allocated

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A stark focus on infrastructure funding has been evident, with special bonds contributing substantially to this area, reaching peaks of 54% in certain months for infrastructure supportThe allocation of new special bonds during the first quarter indicates that nearly half—48%—was directed towards infrastructure projects, while social initiatives, such as healthcare, garnered a respectably smaller share of 13.5%. Significantly, the proportion directed towards urban renewal projects also reached 13.4%. Observationally, there's been a gradual rise in the percentage of new special bonds allocated for infrastructure from January’s 38% to a high of 54% in February, remaining at 53% in March, indicating a strategic push towards bolstering foundational projects.

Credit bond financing has similarly shifted toward supporting infrastructure initiatives, with evident improvements in financing for industries such as real estate and commerce, where a higher proportion of funds are earmarked explicitly for construction projects

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In the first quarter, over 70% of industries witnessed a positive trend in credit bond financing, contrasting sharply with 2021 when less than 40% of sectors experienced similar outcomesSectors closely associated with infrastructure, such as construction, transportation, and public utilities, topped the financing lists, collectively raising over 560 billion yuan, accounting for nearly 55% of total credit bond financing activities.

Furthermore, the demand for loans across various sectors displayed notable trends; specifically, the infrastructure sector witnessed a demand spike significantly exceeding seasonal averagesOn a related note, the loan demand index for the manufacturing sector showed consistent improvementIn the first quarter, indices for both manufacturing and infrastructure loans increased, with a significant uptick of 6.5 percentage points for infrastructure, positioned well above the averages of the last three years.

The ongoing push for stability in growth is proving to pivot funding allocations heavily towards infrastructure and similar areas, thus furnishing necessary support for related projects

Given the significant downward pressures on the economy, there is a corresponding increase in the call for robust measures to ensure stabilityThe preemptive issuance of local bonds combined with a marked inclination of credit financing towards infrastructure domains reflects a cohesive strategy aimed at maintaining economic vitalityWith adequate financial backing, major projects—be they in infrastructure or industry—are hastening both their initiation and construction phases.

In tandem with invigorating infrastructure support, there is an evident prioritization of industrial guidance, ensuring a balance between immediate demand responses and the longer-term imperative of industrial transformation and upgradesWithin the particular allocations for infrastructure-directed special bonds during the first quarter, the proportion supporting municipal industrial park projects held a notable high at 33.5%. Key sectors earmarked for special bond support include high-tech industries, biomedicine, new materials, green transformation, and digital economy initiatives, which collectively command over 70% of related infrastructure investment