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China: Credit conditions and money supply pick up in September

October 16, 2014

New yuan loans totaled CNY 857 billion (USD 140 billion) in September, which was well above the CNY 703 billion recorded in the previous month. The print overshot the CNY 750 billion market analysts had expected. In the 12 months up to September, new yuan loans totaled CNY 9.30 trillion (August: CNY 9.23 trillion), which represented the highest level in three months.

Total social financing—a broader measure of liquidity in the economy that includes loans, bonds and other non-traditional instruments—increased from CNY 957 billion to CNY 1.1 trillion. The print, however, slightly undershot the CNY 1.2 trillion that market analysts had expected. In annual terms, however, total social financing dropped around 25.0%, which suggests that overall conditions remain tight due to weaker activity in the shadow banking sector.

Meanwhile, in order to manage liquidity in the money market, the People’s Bank of China (PBOC) continued to conduct its twice-a-week reverse repurchasing operations. In addition, on 14 October, the People’s Bank of China cut its 1-day repo operation rate by 10 basis points to 3.40% in an attempt to ease credit conditions.

Annual M2 growth, the broadest measure of money supply in China, inched up from August’s 12.8% to 12.9% in September. The result came in just under the 13.0% increase the market had expected.

September’s data confirm that Chinese authorities have stepped in to avert a sharp slowdown of the economy. Moreover, relatively sluggish domestic demand and subdued inflation gives the government leeway for further monetary policy easing in the months to come. As Wang Tao, Chief China Economist at UBS points out:

“Looking forward, we expect the central bank to continue to maintain a relatively supportive credit environment to defend the growth target. Further relaxation of credit supply through increased base money supply and relaxation of loan quota could help, though we do not expect a RRR cut soon unless there are persistent large FX outflows. We also expect a wholesale cut in the benchmark lending rate by end of 2014 or early 2015 at the latest to help more effectively lowering borrowing costs and boost business cash flow. To aid the effectiveness of monetary policy and support credit demand, however, we also expect the government to launch new key infrastructure projects and relax property policies further.”

FocusEconomics Consensus Forecast participants expect M2 to expand 12.9% in 2014, which is unchanged over the previous month’s forecast. In 2015, the panel sees M2 growth of 12.4%, which is also unchanged from last month’s estimate.


Author: Ricard Torné, Head of Economic Research

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China Money September 2014

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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