China Credit Growth Accelerates as Shadow Banking Gauge Picks Up

China’s broadest measure of new credit increased more than estimated in March amid strong growth in shadow banking. New loans slowed for a second month while the money supply increased at the most sluggish pace since July.

Key Points

  • Aggregate financing stood at 2.12 trillion yuan ($308 billion), the People’s Bank of China said Friday, versus a median estimate of 1.5 trillion yuan in Bloomberg’s survey
  • New yuan loan growth slowed to 1.02 trillion yuan, compared with an estimated 1.2 trillion yuan
  • Broad M2 money supply increased 10.6 percent, versus a projected 11.1 percent rise

Big Picture

The acceleration suggests a government campaign to ease financial and property risks may take longer to implement after big cities rolled out home purchase curbs. Policy makers last month cut the money supply growth target to 12 percent this year from 13 percent last year, with an economic growth target of "around 6.5 percent, or higher if possible."

Economist Takeaways

  • "The economy continues to lever up. Even so, a slowdown in credit expansion and an acceleration in nominal GDP mean it is at least levering up at a slower pace," Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a note. "With growth robust, the People’s Bank of China will likely continue looking for opportunities to nudge market rates higher, as it leans against the risk of excess leverage."
  • "Credit supply restraint isn’t showing up in the numbers," said George Magnus, an associate at the University of Oxford China Centre and former senior adviser for UBS Group AG. "Credit creation is still running way too fast."
  • "The PBOC’s tilt toward tightening hasn’t changed," said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. "The increase of aggregate financing is slowing, although at a pace not as sharply as the market has expected."
  • "The economy still shows strong demand for financing," Shenyin & Wanguo Securities Co. analysts led by Li Huiyong in Shanghai wrote in a research note. "Still, the central bank’s tightening has already slowed M2 growth, and liquidity injections in the future will depend on the economic activities and policy targets."

The Details

  • Components of shadow banking rose to 753.9 billion yuan, suggesting efforts to rein in growth of off-balance-sheet lending aren’t putting a much of a dent in such borrowing
  • New medium and long-term loans to households, made up mostly of mortgages, rose to 450.3 billion yuan. That category reached a record 629.3 billion yuan in January
  • The government increased spending last month as fiscal expenditures jumped 25.4 percent from a year earlier to 2.11 trillion yuan
  • M2 growth is in line with the economic expansion and the moderation shows that deleveraging is effective, the central bank said in a statement
  • The increase in new credit shows that the financial support to the real economy hasn’t let up, the PBOC said
  • Commercial banks have been slimming down their asset management products on the balance sheet and controlling bond issuance, the PBOC said

(A previous version of this story corrected shadow banking totals.)

— With assistance by Xiaoqing Pi, Miao Han, and Kevin Hamlin

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