China Money


Growth in new loans and M2 soars on stocks rescue

New credit and M2 accelerated sharply in July after the Central Bank unveiled a series of measures to shore up the equity market, which recorded steep declines since mid-June. New yuan loans totaled CNY 1.5 trillion (USD 230 billion) in July, which was well above the CNY 1.3 trillion recorded in the previous month. Furthermore, the print overshot the CNY 750 billion that market analysts had expected and represented the largest reading in over six years. In the 12 months up to July, new yuan loans totaled CNY 11.7 trillion (June: CNY 10.6 trillion), thereby hitting an all-time high.

Total social financing—a broader measure of liquidity in the economy that includes loans, bonds and other non-traditional instruments—dropped from CNY 1.9 trillion in June to CNY 719 billion in July, which represented a nine-month low. The print came in well below the CNY 1.0 trillion that market analysts had expected.

Annual M2 growth, the broadest measure of money supply in China, rose from June’s 11.8% to 13.3% in July. The result overshot the 11.7% increase the market had expected and represented the fastest acceleration in a year.

The bold monetary easing unveiled in late June and early July in order to shore up China’s equity market highly distorted this month’s data. In specific, the People’s Bank of China ordered commercial banks to lend large amounts of funds to the China Securities Corporation, bolstering new yuan loans and M2 growth. Conversely, aggregate financing declined sharply in July. According to Changchun Hua, China Economist at Nomura International:

Weaker aggregate financing could be due to seasonal effects and the local government debt swap programme. The Ministry of Finance has approved a RMB2trn quota for the local government debt swap programme, which reduces the need to finance the local government financing vehicles, while local government bonds are not included in aggregate financing. Moreover, aggregate financing tends to be seasonally weaker in July after June spikes due to the mid-year effect.

The government targeted M2 growth at 12.0% for this year. FocusEconomics Consensus Forecast participants expect M2 to expand 12.0% in 2015, which is unchanged over the previous month’s forecast. In 2016, the panel sees M2 growth of 11.6%.

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China Money Chart

China Money July 2015

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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