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China Money July 2021

China: Credit growth slows in July

In July, Chinese banks distributed CNY 1.1 trillion (roughly USD 160 billion) in new yuan loans, down from June’s 2.1 trillion figure and below market expectations.

Annual growth in M2 money supply dipped from 8.6% in June to 8.3% in July, below market expectations, while 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—was down from 11.0% to 10.7%. The weaker-than-expected July credit data came despite the PBOC cutting the reserve requirement ratio by 0.5 percentage points in the month, and suggests the authorities are keen to maintain a prudent stance.

Most of our panelists see the Bank’s key policy interest rates remaining unchanged through year-end.

On the outlook for monetary policy, analysts at Credit Suisse stated:

“We expect a modest loosening on the monetary policy front relative to H1 in light of negative shocks from recent flooding (likely transitory) and newly imposed Covid restrictions, which means that M2 growth and TSF growth should accelerate in coming months. Yet, we maintain our outlook that M2 growth for the year will be around 9%, which represents a deceleration from that of last year. We reiterate that we expect no more RRR cuts in H2. We are unlikely to change our outlook unless the recent Covid outbreak cannot be contained quickly and leads to longer-than-expected Covid restrictions.”

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