Monetary Base in China

China Monetary Base

Credit data disappoints in July

In July, Chinese banks distributed CNY 346 billion in new yuan loans, down from June’s 3,051 billion figure and driven by lower loans to corporates and households. M2 money supply increased 10.7% year on year in July (June: +11.3% yoy). The outturn marked the worst reading since April 2022. Meanwhile, the stock of total social financing (TSF)—a broader measure of credit and liquidity in the economy—expanded 8.9% in the month (June: 9.0% yoy). The data on new yuan loans, TSF and M2 were all below market expectations, a sign of weak domestic demand, tepid economic sentiment and the depressed property sector.

Regarding monetary policy, in mid-August the PBOC cut the 7-day reverse repo rate by 10 basis points and the medium-term lending facility by 15 basis points, after a host of policy rates were cut by 10 basis points in June. Further monetary easing is on the cards later this year as the Bank aims to stabilize the economy.

On the latest data and the outlook for credit, Nomura analysts said:

“The weak July credit data suggest the downward spiral of the property sector continues, and worsening geopolitical tensions add to the uncertainty. […] corporates and households are cutting their borrowing due to a lack of confidence (and trust). Rapidly rising credit risks associated with Country Garden, the largest private developer, and potential for escalating geopolitical tensions could further dampen credit demand in the private sector. Beijing may eventually play the role of borrower and spender of last resort, by ramping up funding support to local governments.”