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China: June credit data reflect policy easing bias

July 15, 2014

New yuan loans totaled CNY 1.08 trillion (USD 176 billion) in June, which was above the CNY 871 billion recorded in the previous month. The print overshot market expectations of loans totaling CNY 915 billion and represented the highest level in five months. In the 12 months up to June, new yuan loans totaled CNY 9.6 trillion (May: CNY 9.3 trillion), which represented the highest level since December 2009.

Total social financing—a broader measure of liquidity in the economy that includes loans, bonds and other non-traditional instruments—expanded from the CNY 1.4 trillion recorded in May to CNY 2.0 trillion in June. The reading exceeded the CNY 1.4 trillion that market analysts had expected. Meanwhile, in order to manage liquidity in the money market, the People’s Bank of China (PBOC) continued to conduct its twice-a-week reverse repurchasing operations.

Annual M2 growth, the broadest measure of money supply in China, accelerated from 13.4% in May to 14.7% in June, which represented the fastest expansion in 10 months. The print was above the 13.8% increase the marked had expected.

The improvement in credit conditions in June mainly reflected the Central Bank’s shift toward a more accommodative monetary policy stance. In addition, stronger fiscal spending also played a role in fostering credit growth. Analysts added that the share of new loans in total financing increased in June, suggesting that policy makers’ efforts to rein in shadow banking activities are continuing to bear fruit.

FocusEconomics Consensus Forecast participants expect M2 to expand 13.0% in 2014, which is unchanged over the previous month’s forecast. In 2015, the panel sees M2 growth of 12.6%.


Author: Ricard Torné, Lead Economist

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China Money June 2014

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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