China Money August 2016


Credit conditions improve in August

Chinese banks extended CNY 949 billion (USD 142 billion) in new yuan loans in August, which marked an improvement over July’s two-year low of CNY 464 billion. August’s print also overshot the CNY 750 billion the markets had expected. In the 12 months up to August, new yuan loans totaled CNY 11.8 trillion (July: CNY 11.7 trillion).

Total social financing (TSF)—a broader measure of credit and liquidity in the economy that includes loans, bonds and other non-traditional instruments—jumped from July’s CNY 488 billion to CNY 1.47 trillion in August. The print exceeded the CNY 900 billion the markets had expected.

Meanwhile, annual growth in M2—the broadest measure of money supply in China—rose from July’s 15-month low of 10.2% to 11.4% in August. The reading came in well above the 10.5% rise the markets had expected.

August’s rebound in credit growth and finance aggregate suggest that the People’s Bank of China’s accommodative monetary policy remains firmly in place. Xiangrong Yu, China economist at CICC, points out that:

“Continued economic reflation and rising property prices, as well as exchange rate concerns, will constrain the scope for monetary easing. We expect no interest rate cuts in 2H16 and recognize that the real challenge to monetary policy is the effectiveness of its transmission. Coordinated fiscal efforts can facilitate channeling of the hoarded liquidity to the real economy. That said, the PBoC will still need to keep liquidity conditions relatively stable. A consistent and transparent policy setting will help anchor market expectations and support economic activity.”

FocusEconomics Consensus Forecast participants expect M2 to expand 12.3% in 2016, which is up 0.1 percentage points over the previous month’s forecast. In 2017, the panel sees M2 growth of 11.6%.

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China Money Chart

China Money August 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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