Photographer: Tomohiro Ohsumi/Bloomberg

China Central Bank Reassures on Policy After Credit Slows

Updated on
  • Local government debt swap helps slow new yuan loan growth
  • M2 money supply likely to pick up after September: PBOC

China’s central bank reassured investors that monetary policy will continue to support the economy after a sharp slowdown in new credit last month, and said the lending slump was temporary.

The deceleration in the growth of new yuan loans in April was mainly due to a pick-up in a program to swap high-cost local government debt for cheaper municipal bonds, the People’s Bank of China said in a statement on its website on Saturday. No less than 350 billion yuan ($53.6 billion) of such swaps were conducted last month, while aggregating financing growth was affected partly by a decrease in corporate bond issuance, according to the central bank.

The central bank’s statement came after data on May 13 showed that China’s broadest measure of new credit rose less than expected last month, suggesting that the central bank is starting to temper a flood of borrowing. The PBOC said Saturday it will continue to implement prudent monetary policy and create an appropriate financial and monetary environment to facilitate steady economic growth.

Data on Saturday showed China’s economy reverting to slower growth. Industrial production climbed 6 percent in April from a year earlier, down from 6.8 percent in March and missing economists’ estimates for 6.5 percent, while retail sales also missed analyst forecasts, rising 10.1 percent.

Lending Slowdown

That followed figures released a day earlier showing that aggregate financing was 751 billion yuan in April, below all 26 analysts’ forecasts in a Bloomberg survey, and new yuan loans were 555.6 billion yuan, compared with the median estimate for 800 billion yuan.

Additional liquidity injections in the second and third quarters last year to stabilize a volatile stock market led to much higher base numbers for this year’s M2 money supply growth, and the PBOC expects a significant slowdown in coming months before picking up again after September and October, according to the statement. An increase in fiscal deposits and a cooling in the equity market also affected M2 growth, said the PBOC.

— With assistance by Hui Li

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