City skyline in China

China Money June 2021

China: Credit outperforms expectations in June; PBOC cuts reserve requirement ratio

In June, Chinese banks distributed CNY 2.1 trillion (roughly USD 320 billion) in new yuan loans, up from May’s 1.5 trillion figure and beating market expectations.

Annual growth in M2 money supply ticked up from 8.3% in May to 8.6% in June, above market expectations of 8.2% growth. 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 unchanged at 11.0%. Moreover, in early July the PBOC announced a cut in the reserve requirement ratio (RRR) by 0.5%, taking the RRR for major banks down to 12.0%. The cut will release around USD 150 billion into the economy. However, the Bank simultaneously reiterated it would maintain a prudent stance.

The RRR cut suggests authorities are concerned about the country’s recent economic performance and the struggles being faced by small businesses, amid surging commodity prices and following underwhelming economic data for May and June. The slightly looser monetary stance thus likely has one eye on shoring up activity. For now, most of our panelists see the Bank’s other key interest rates remaining unchanged through year-end.

On the outlook for credit, analysts at Credit Suisse stated:

“The reemphasis of a ‘stable,’ monetary policy stance suggests that the PBoC is sticking to a monetary policy stance that is in between those of the previous two years. Numerically, our conjecture of the PBOC’s aim remains M2 growth of around 9% for 2021, which corresponds to credit growth of around 12%. The PBOC must have deemed that an across-the-board cut was necessary to achieve this goal. The cut increases our conviction that both M2 and TSF growth will increase in the coming months.”

Free sample report

Access essential information in the shortest time possible. FocusEconomics provide hundreds of consensus forecast reports from the most reputable economic research authorities in the world.
Close Left Media Arrows Left Media Circles Right Media Arrows Right Media Circles Arrow Quote Wave Address Email Telephone Man in front of screen with line chart Document with bar chart and magnifying glass Application window with bar chart Target with arrow Line Chart Stopwatch Globe with arrows Document with bar chart in front of screen Bar chart with magnifying glass and dollar sign Lightbulb Document with bookmark Laptop with download icon Calendar Icon Nav Menu Arrow Arrow Right Long Icon Arrow Right Icon Chevron Right Icon Chevron Left Icon Briefcase Icon Linkedin In Icon Full Linkedin Icon Filter Facebook Linkedin Twitter Pinterest