China Money May 2016


Credit growth improves in May

New yuan loans totaled CNY 986 billion (USD 150 billion) in May, which came in above the CNY 556 billion registered in the previous month. May’s print overshot the CNY 750 billion the markets had expected. In the 12 months up to May, new yuan loans totaled CNY 12.6 trillion (April: CNY 12.5 trillion).

Total social financing—a broader measure of liquidity in the economy that includes loans, bonds and other non-traditional instruments—fell from CNY 751 billion in April to CNY 660 billion in May.

Meanwhile, annual growth in M2—the broadest measure of money supply in China—fell from 12.8% in April to 11.8% in May, beating market expectations of 12.5%. May’s print represented an 11-month low.

Although most of our panelists expect that monetary authorities will cut rates in the coming months in order to support economic growth, there are also some dissenters. As Xiangrong Yu, China Economist at CICC, points out:

“As policy makers seek a balance between growth stabilization and structural reform, we expect no interest rate cuts this year and see narrowed room for lowering the reserve requirements. Nevertheless, the PBoC will not shift its policy stance until inflationary pressure becomes more visible and may use more targeted operations instead of broad-based easing so as to facilitate supply-side reforms and contain financial risks.”

FocusEconomics Consensus Forecast participants expect M2 to expand 12.8% in 2016, which is unchanged 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 May 2016 0

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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