China Money February 2017


China: Credit growth softens in February

March 9, 2017

Chinese banks extended CNY 1.17 trillion (USD 169 billion) in new yuan loans in February, nearly halving January’s CNY 2.03 trillion. Despite February’s decline, the print overshot the CNY 950 billion the markets had expected. In the 12 months up to February, new yuan loans totaled CNY 12.6 trillion (January: CNY 12.2 trillion).

Total social financing (TSF)—a broader measure of credit and liquidity in the economy that includes loans, bonds and other non-traditional instruments—plummeted from January’s all-time high of CNY 3.74 trillion to CNY 1.15 trillion in February. The print undershot market analysts’ expectations of CNY 1.45 trillion.

January’s surge in liquidity mostly reflects seasonal factors as banks tend to frontload their loans early in the year in order to maintain their market share.

Meanwhile, annual growth in M2—the broadest measure of money supply in China—declined from 11.3% in January to 11.1% in February. The reading was a seven-month low and fell short of the 11.4% that market analysts had expected.

The People’s Bank of China decided to tighten its monetary policy on 16 March following a similar move on 3 February. Again, instead of using its high-profile tools, the 1-year deposit and the 1-year lending rates, the Bank decided to hike a number of money market rates. Therefore, the 7-day, 14-day and 28-day reverse repo rates were hiked by 10 basis points to 2.45%, 2.60% and 2.75% respectively. The PBOC also raised the 6-month and 1-year medium-term lending facility rates to 3.05% and 3.20%. The tightening was triggered by solid economic fundamentals in China, the authorities’ willingness to contain financial risks and the U.S. Federal Reserve’s decision to hike rates on 15 March.

FocusEconomics Consensus Forecast participants expect M2 to expand 11.5% in 2017, which is up 0.2 percentage points from the previous month’s forecast. In 2018, the panel sees M2 growth of 10.7%.

Author: Ricard Torné, Lead Economist

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China Money Chart

China Money February 2017

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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