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China: New yuan loans soar, while M2 slows in January

February 15, 2014

New yuan loans totalled CNY 1.3 trillion (USD 218 billion) in January, which was well above the CNY 483 billion recorded in the previous month and marked the highest level since January 2010. The print overshot market expectations of loans totalling CNY 1.1 trillion. In the 12 months up to January, new yuan loans totalled CNY 9.1 trillion (December: CNY 8.9 trillion), which marked the highest print in four years.

Total social financing - a broader measure of liquidity in the economy that includes loans, bonds and other non-traditional instruments - soared to a record high of CNY 2.6 trillion in January (December: CNY 1.2 trillion), which was well above the CNY 1.9 trillion market had expected. Meanwhile, in order to manage liquidity from the money market, the People's Bank of China (PBOC) continued to conduct its twice-a-week reverse repurchasing operations.

January's surge in credit growth seems to contradict the Central Bank's quarterly report released on 8 February, in which it vowed to maintain a relatively tight liquidity environment. While analysts acknowledge that banks are still extending a great deal of loans in order to support investment and economic growth, they reckon that the People's Bank of China maintains a tightening bias, as money market rates remained high in January. In addition, analysts pointed out that the seasonal pick-up in loans, which occurs in the beginning of each year, did also play a role in January's strong credit figures.

M2, the broadest measure of money supply in China, rose 13.2% over the same month last year in January (December: +13.6% year-on-year). The increase was in line with market expectations.

FocusEconomics Consensus Forecast participants expect M2 to expand 12.9% in 2014, which is down 0.2 percentage points over the previous month's forecast. In 2015, the panel sees M2 growth at 13.0%.


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China Money Chart


China Money January 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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