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China Money February 2019

China: Growth in new loans and M2 slows in February

In February, Chinese banks distributed CNY 886 billion (USD 132 billion) in new yuan loans. The reading was well below both the CNY 3.23 trillion distributed in January and market expectations of CNY 950 billion. In the 12 months up to February, new yuan loans totaled CNY 13.8 trillion (12 months up to January: CNY 16.5 trillion).

Meanwhile, annual growth in M2—the broadest measure of money supply in China—fell from January’s 8.4% to 8.0% in February. The reading undershot market expectations of an 8.4% increase.

Total social financing (TSF)—a broader measure of credit and liquidity in the economy that includes loans, bonds and other non-traditional instruments—fell from an all-time high of CNY 4.64 trillion in January to CNY 703 billion in February.

January’s strong print had reflected Chinese banks frontloading loans early in the year in order to gain market share and attract higher-quality clients. Despite the apparent deterioration in money and credit conditions, analysts at Nomura state that there is no need to overact:

“We believe there is no need to overreact to the sharp decline in new credit in February for two reasons: 1) With January-February data combined to smooth out LNY holiday distortions, aggregate financing and new RMB loans were RMB5310bn and RMB4116bn, respectively, this year, significantly above RMB4269bn and RMB3739bn in 2018; 2) Year-to-date augmented aggregate financing (aggregate financing plus all net increase of government bonds) growth was 10.6% y-o-y in February, well above 10.2% at end-2018.”

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