China Credit Growth Slows During May

Chinese credit growth, which has been the key driver of China’s economic growth and has eased concerns about the fragility of the country’s economy, appears to have slowed in May.

Reports from HSBC and Nomura highlight that aggregate financing came in at RMB659.9 billion for the month, far below consensus, which was calling for growth of around RMB1 trillion, resulting in slower growth in stock outstanding to 12.6% year-on-year, from 13.1% in April.

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New RMB loans hit RMB985.5 billion in May, above consensus of RMB750 billion. Nearly half of these loans were made to the household sector, which Nomura speculates was largely in mortgage loans — consistent with the rapid growth in property sales reported during May.

China credit growth slowing

The two weak spots on the credit report were corporate bond issuance and off-balance-sheet credit. Net corporate bond issuance was negative RM39.7 billion in May down sharply from RMB209.6 billion expansion in April (rising default events were to blame).

Off-balance sheet credit, trust loans, entrusted loans and banker acceptance bills, fell to growth of 1.3% year-on-year during May, from 3.4% reported during the previous month largely on an RMB506.6 billion decline in banker acceptance bills.

Local government bond a net issuance amounted to RMB527.1 billion, almost half of April’s total. If local government bond issuance is incorporated into the total, augmented aggregate finance totalled RMB1.2 trillion in May, with the growth of stock slowing to 17.1% year-on-year in May, from 17.4% in April.

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M2 growth slowed by more than expected, to 11.8% year-on-year in May from 12.2% the month before. Nomura expects a further slowdown in M2 growth going forward:

“M2 growth in year-on-year terms may fall significantly in July given the high base last year due to the equity market stabilisation plan and may get some help in December from a low base last year. We maintain our forecast of 12% M2 growth in 2016, but see the risk as biased toward the downside.”

And HSBC notes that while credit conditions were marginally tighter during May, and could tighten more in the coming months, overall credit conditions remain accommodative:

“Despite strong lending data, total social financing (TSF) came in below market expectations, mostly on the back of declining corporate bond issuance and falling bank acceptance. The weakness in the TSF data, as well as potential risks around new lending data suggest that credit conditions were marginally tighter in May and could tighter a bit more in the coming months. That said, overall monetary conditions likely remain very accommodative and sufficient to support fiscal expansion, which remains critical to the growth recovery. Should monetary condition begin to impede fiscal expansion, policy makers have the room to deliver additional monetary easing.”