China Credit Growth Exceeds Estimates Despite Regulatory Curbs

China’s broadest measure of new credit exceeded estimates in April even as regulators push to clamp down on financial leverage and curb the nation’s debt pile.

Key Points

  • Aggregate financing expanded 1.39 trillion yuan ($201 billion), the People’s Bank of China said Friday, versus a median estimate of 1.15 trillion yuan in a Bloomberg survey and an an increase of 2.12 trillion in March
  • New yuan loans rose to 1.1 trillion yuan, more than the estimated 815 billion yuan
  • The broad M2 money supply increased 10.5 percent, less than the 10.8 percent forecast

Big Picture

Policy makers’ renewed focus on reining in risks and cutting financial leverage has yet to make a major dent in the nation’s surging credit demand. The Communist Party’s top 25-member politburo including President Xi Jinping gathered to discuss "safeguarding national financial-market security" last month, initiating a clampdown that has mainly focused on shadow banking and roiled stock and credit markets.

Economist Takeaways

"The government doesn’t really want to clamp down on the type of credit that supports the economy most," said Yao Wei, chief China economist at Societe Generale SA in Paris, citing the contrast between healthy loan growth and contractions of shadow banking categories such as entrusted loans. "Policy makers will continue to keep a balance. The regulation will have heavier impacts on financial assets in the short term than the real economy."

"China’s 2017 growth is likely already past its peak, and slower credit will add to the downward pressure," Bloomberg Intelligence Chief Asia economist Tom Orlik wrote in a note. "But with those offsetting positives, the impact should be marginal rather than extreme."

"The latest numbers aren’t extremely surprising since Beijing’s new monetary policy stance will take time to become effective," said Frederik Kunze, chief China economist at German lender NordLB in Hanover. "In coming months the new course should be more observable."

The disconnect between the money supply and aggregate financing is worrying because M2 is lower than expected while total financing expanded more than projected, according to Zhou Hao, an economist at Commerzbank AG in Singapore. "M2 reflects the deposits, while total social financing is about the lending. The mismatch will be potentially problematic, leading to prolonged liquidity crunch. The deleveraging also seemed to have little effect."

The Details

  • Entrusted loans, a type of shadow financing between two companies in which a bank is the intermediary, contracted for the first time since 2007
  • Other types of shadow banking including trust loans and bankers acceptances slowed
  • Total outstanding aggregate financing increased to 164.2 trillion yuan

— With assistance by Yinan Zhao, Xiaoqing Pi, and Miao Han

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