Credit growth slowed on shadow banking tightening: New bank loans were RMB986bn in May, up from RMB556bn in Apr and the consensus of RMB750bn (Fig 19). However, credit data are tricky to read these days as they are distorted by local debt swap. Taking that into account, new loans were hardly changed in May. By breakdown, 58% of total new loans were residential loans, which reflects the strong property sales. That said, shadow banking lending contracted due to the recent regulatory tightening on bill financing. As such, total social financing (TSF) dropped to RMB660bn in May from RMB751bn in Apr. Note that TSF doesn’t include government debt issuance. Since local government debt issuance (RMB503bn) was only half of that in Apr, overall credit growth is likely to have slowed in May.
Continued divergence between M1 and M2: Weaker TSF along with a high base led to a slowdown in M2 growth from 12.8% yoy in Apr to 11.8% in May. M2 growth could moderate further in the next few months as the base is boosted by the stock market rescue last summer. Meanwhile, M1 growth accelerated further to 23.7% yoy in May (Fig 20). Since M1 is driven by demand deposits, it suggests that while the cash position for corporates has improved thanks to stimulus and higher earnings growth this year, they are reluctant to invest because of their negative outlook on the economy, which is also reflected in the zero private investment growth in May.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
