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China’s New Loans, Financing Top Estimates

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PBOC Governor Zhou Xiaochuan
Zhou Xiaochuan, governor of the People's Bank of China. The challenge for Zhou has been to follow Communist Party orders to ensure enough credit without resorting to broad-based loosening that may stoke financial risks. Photographer: Brent Lewin/Bloomberg

July 15 (Bloomberg) -- China’s broadest measure of new credit topped analysts’ estimates in June, signaling policy makers’ shift toward supporting economic growth over reining in shadow banking.

Aggregate financing was 1.97 trillion yuan ($317 billion) in June, the People’s Bank of China said on its website today, compared with the median estimate of analysts for 1.425 trillion yuan. New local-currency loans were 1.08 trillion yuan and M2 money supply grew 14.7 percent from a year earlier. China’s foreign-exchange reserves, the world’s biggest, rose to $3.99 trillion from $3.95 trillion at the end of March.

The financing measure was the highest for June since the lending spree of 2009, as PBOC Governor Zhou Xiaochuan tries to ensure enough credit without resorting to broad-based loosening that may stoke debt risks. Data tomorrow on gross domestic product, industrial output and investment will indicate the impact of pro-growth efforts such as expedited spending on infrastructure projects after expansion in the first quarter slid to the weakest in 18 months.

“Those projects need to be financed,” said Chang Jian, chief China economist at Barclays Plc in Hong Kong. The effects of credit easing will probably show up in tomorrow’s industrial production data, she said.

The benchmark Shanghai Composite Index reversed losses after the data and was little changed at the 11:30 a.m. local-time break.

Aggregate financing compared with 1.4 trillion yuan in May and 1.04 trillion yuan a year earlier. Estimates of 18 analysts in a Bloomberg News ranged from 1.2 trillion yuan to 1.55 trillion yuan.

Median Estimates

New yuan lending in June compared with the 955 billion yuan median projection in a Bloomberg survey and 860.5 billion yuan a year ago. Growth in M2, China’s broadest measure of money supply, was the fastest since August and compared with the median estimate for 13.6 percent.

Foreign-exchange reserves increased 1.1 percent from the previous quarter, the slowest rate since December 2012, a pace that Credit Agricole SA said indicates $100 billion of capital outflows and explains the downward pressure on the yuan. Growth in reserves is likely to pick up this quarter, pushing the total above $4 trillion, Dariusz Kowalczyk, senior economist and strategist in Hong Kong, said in e-mailed comments.

Premier Li Keqiang said July 7 that while China’s economic performance in the second quarter improved from the previous period, the nation can’t lower its guard against downward pressure and will increase the strength of targeted measures.

Offset Tightening

“The government has been concerned more about stabilizing growth recently,” and today’s figures are a “confirmation of credit easing,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “It’s offsetting the tightening from previous months.”

The central bank’s policy toolkit has included targeted cuts in banks’ reserve requirement ratios and relending, a facility where the PBOC provides credit to financial institutions for loans to specific sectors earmarked by the government, such as agriculture, small businesses and social housing.

The China Banking Regulatory Commission has also stepped in, increasing banks’ capacity to lend money by changing the way loan-to-deposit ratios are calculated, according to a June 30 statement.

“It’s crystal clear by now that China’s monetary trajectory is on a steep upward climb,” said Steve Wang, chief China economist at investment bank Reorient Financial Markets Ltd. in Hong Kong.

Targeted Stimulus

Even as the government grapples with rising corporate and local government borrowing, a property slump and the growing risk of default by wealth management products, some areas of the economy are showing signs of stabilizing after the State Council rolled out targeted stimulus measures including expediting spending and cutting taxes.

Factory-gate prices fell in June at the slowest pace in more than two years, government data showed last week, and two gauges of manufacturing rose to the highest levels this year, reports showed on July 1.

The statistics bureau will release second-quarter GDP data tomorrow. The economy probably grew 7.4 percent from a year earlier, according to the median estimate of analysts in a Bloomberg News survey. That would match the pace of the previous three months. Premier Li in March set a 2014 growth target of “about” 7.5 percent.

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net

To contact the editors responsible for this story: Chris Anstey at canstey@bloomberg.net Nerys Avery, Scott Lanman

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