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China: Credit data improve in August

September 11, 2014

New yuan loans totaled CNY 703 billion (USD 114 billion) in August, which was well above the CNY 385 billion recorded in the previous month. The print was virtually in line with the CNY 700 billion market analysts had expected. In the 12 months up to August, new yuan loans totaled CNY 9.23 trillion (July: CNY 9.24 trillion), which represented the lowest level in four months.

Total social financing—a broader measure of liquidity in the economy that includes loans, bonds and other non-traditional instruments—rebounded strongly from only CNY 273 billion, which represented the lowest reading since 2008, to CNY 957 billion. The print, however, undershot the CNY 1.1 trillion that market analysts had expected. 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, decelerated from 13.5% in July to 12.8% in August, which represented the weakest reading in five months. The result came in below the 13.5% increase the market had expected.

Despite the improvement in new loans tallied in August, Liu Li-Gang, Chief Economist for Greater China at ANZ warns that:

“The August monetary data suggest that China’s credit extension has improved somewhat after the sharp decline in July, which could ease concerns on a hard landing. However, the rising market volatility and uncertainty could result in a disorderly de-leveraging in the Chinese economy and increase systematic risks.”

Given China’s weak domestic demand, the government may embark on further targeted easing measures in the months to come. According to analysts, Chinese authorities could unveil new economic targeted measures and further relax the monetary policy.

FocusEconomics Consensus Forecast participants expect M2 to expand 13.0% in 2014, which is unchanged over the previous month’s forecast. In 2015, the panel sees M2 growth of 12.6%.


Author: Ricard Torné, Lead Economist

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China Money Chart


China Money August 2014 1

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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