China: Credit indicators recover after June liquidity squeeze
August 9, 2013
New yuan loans totalled CNY 700 billion (USD 114 billion) in July, which was below the CNY 861 billion recorded in the previous month. The print exceeded market expectations of loans totalling CNY 600 billion and was well above the CNY 540 billion observed in the same month last year. In the 12 months up to July, new yuan loans totalled CNY 8.6 trillion (June: CNY 8.4 trillion).
Total social financing - a broader measure of liquidity in the economy that includes loans, bonds and other non-traditional instruments - dropped to the lowest level in 21 months, falling from CNY 1.0 trillion in June to CNY 809 billion in July. According to market participants, the sharp decline in total social financing reflects the government's efforts to crack down on shadow banking in an attempt to return money to formal banking channels.
M2, the broadest measure of money supply in China, rose 14.5% year-on-year in July (June: +14.0% yoy). The figure overshot market expectations which saw M2 growth slowing to 13.9%.
Credit indicators started to recover in July after the liquidity squeeze in June that shot up China's interbank interest rates. In order to help relieve the liquidity shortage, the People's Bank of China (PBOC) suspended open market operations from 27 June to 30 July. With this decision, the PBOC injected some liquidity into the banking system by letting central bank bills mature, while maintaining a tight monetary policy stance.
The government's M2 growth target for this year is 13.0%. FocusEconomics Consensus Forecast participants expect M2 to expand 13.8% in 2013, which is unchanged over the previous month's forecast. In 2014, the panel sees M2 growth at 13.0%.