China Money April 2016


Authorities rein in credit expansion in April

New yuan loans totaled CNY 556 billion (USD 85.3 billion) in April, which came in well below the CNY 1.4 trillion registered in the previous month. April’s print significantly undershot the CNY 800 billion the markets had expected. In the 12 months up to April, new yuan loans totaled CNY 12.5 trillion (March: CNY 12.7 trillion).

Total social financing—a broader measure of liquidity in the economy that includes loans, bonds and other non-traditional instruments—plummeted from CNY 2.3 trillion in March to CNY 751 billion April.

Meanwhile, annual growth in M2—the broadest measure of money supply in China—fell from 13.4% in March to 12.8% in April, missing market expectations of 13.5%.

Chinese authorities decided to pull the reins amid concerns that credit-fueled growth could spur property bubbles and threaten long-term economic sustainability. As Changchun Hua, China Economist at Nomura, points out:

“Overall, the slower-than-expected credit expansion reflects the effectiveness of the more cautious monetary policy stance taken by authorities concerned by financial imbalances and the recent property market rally in Tier-1 cities. We believe the April data confirm our view that the surge in credit supply in Q1 was unsustainable and that the government has prioritised supply-side reforms and deleveraging over growth driven by further credit extension.”

FocusEconomics Consensus Forecast participants expect M2 to expand 12.7% in 2016, which is up 0.5 percentage points over the previous month’s forecast. In 2017, the panel sees M2 growth of 11.7%.

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China Money Chart

China Money April 2016

Note: New yuan loans in CNY billion and year-on-year variation of M2.
Source: People’s Bank of China (PBOC) and FocusEconomics calculations.

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