China: Credit conditions tighten further in May
In May, Chinese banks distributed CNY 1.5 trillion (roughly USD 230 billion) in new yuan loans, similar to April’s figure.
Annual growth in M2 money supply ticked up from 8.1% in April to 8.3% in May. However, annual growth in the stock of total social financing (TSF)—a broader measure of credit and liquidity in the economy that includes loans, bonds and other non-traditional instruments—fell from 11.7% in April to 11.0% in May. All in all, May’s figures reflect the government’s cautious monetary stance and efforts to guarantee financial stability.
Over 2021 as a whole, credit growth is likely to be notably slower than in 2020 as the PBOC unwinds Covid-19 relief measures and seeks to limit financial risks—particularly in the property sector. However, most panelists see key interest rates staying unchanged this year.
On May’s reading and the outlook, David Wang, head of China Economics at Credit Suisse, stated:
“PBoC Governor Yi Gang reaffirmed that China should maintain a stable monetary policy stance. The credit and money supply data of May were consistent with his words. Our interpretation of ‘stable’ is that China’s monetary policy this year will be modestly tighter than that of last year but still more accommodative than that of 2019. We do not expect the 10-year government bond yield to increase meaningfully from current levels.”
Analysts at Nomura had a slightly different take:
“In our view, Beijing is becoming increasingly concerned about a growth slowdown in H2 while markets appear worried that policy may have shifted too quickly […]. We expect Beijing to speed up government bond financing by completing the remaining RMB5.2trn of net financing out of the RMB7.0trn budget. Beijing may even ease restrictions on some types of financing later this year. The year-on-year outstanding TSF growth, which is closely tracked by both the PBoC and markets, might drop to below 11.0% in June but may subsequently rebound to above 11.0% thereafter.”