China: Credit conditions improve in May
June 12, 2014
New yuan loans totalled CNY 871 billion (USD 140 billion) in May, which was above the CNY 775 billion recorded in the previous month. The print was virtually in line with market expectations of loans totalling CNY 870 billion. In the 12 months up to May, new yuan loans totalled CNY 9.3 trillion (April: CNY 9.1 trillion), which represented the highest level since January 2010.
Total social financing—a broader measure of liquidity in the economy that includes loans, bonds and other non-traditional instruments—moderated slightly from the CNY 1.6 trillion recorded in April to CNY 1.4 trillion in May. The reading matched market expectations. 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.
Annual M2 growth, the broadest measure of money supply in China, accelerated from 13.2% in April to 13.4% in May, which represented the fastest expansion in five months. The print was in line with market expectations.
The improvement in credit conditions in May partially reflected the economic measures adopted by Chinese authorities to prop up growth. That said, analysts warn that the Central Bank should adopt a more accommodative monetary policy stance in order to achieve the 7.5% growth target set for this year. As Liu Li-Gang, Chief Economist for Greater China at ANZ, points out:
“China’s new credit extension came in higher than expected, possibly because the policy banks accelerated the loan extension to the shanty town renovation projects. […]. In addition, the targeted RRR cut may increase bank lending somewhat, although the contribution should be insignificant given the affected banks are small in terms of asset size. […] It is worth noting that the monetary policy cannot be used as a structural policy to address the structural issues facing China’s economy. There appears to be an inconsistency between the macroeconomic objective of maintaining 7.5% growth and China’s monetary policy, and the PBoC’s policy inaction will likely constrain the government’s ability to achieve its growth target this year.”