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China Money April 2020

China: M2 growth climbs to over three-year high in April

Annual growth in M2—the broadest measure of money supply in China—jumped from March’s 10.1% to an over three-year high of 11.1% in March. The print overshot the 10.3% increase that market analysts had expected.

In April, Chinese banks distributed CNY 1.70 trillion (USD 240 billion) in new yuan loans. The reading came in below the CNY 2.85 trillion recorded in March but overshot the CNY 1.30 trillion that market analysts had expected. In the 12 months up to April, new yuan loans totaled CNY 18.8 trillion (12 months to March: CNY 18.1 trillion).

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 CNY 5.15 trillion in March to CNY 3.09 trillion in April. Market analysts had expected a sharper decrease in TSF to CNY 2.8 trillion.

Despite signs of improving economic sentiment, the economy is still facing multiple challenges stemming from an expected downturn in exports and the risk of a rebound in new Covid-19 cases. Against this backdrop, further monetary policy could be in the pipeline. As Iris Pang, Greater China economist at ING, comments:

“In its first-quarter report, the central bank deleted the prudency wording describing its monetary stance. This is a big change and means the PBoC is going to inject a lot of liquidity into the financial system. The easing policy should focus on SMEs as they will be hit hardest by the Covid-19 crisis, and a possible coming trade war. They employ a lot of workers, mostly lower income groups. We believe the easing will be in the form of targeted RRR cuts or broad-based RRR cuts for all banks.”

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