China’s M2 Growth Plumbs Record Low in June

(Beijing) — China’s broader money supply M2 grew at a record-low pace in June, signaling that the country’s deleveraging efforts have continued to gain traction.

In June, M2 grew 9.4% from a year earlier to 163.13 trillion yuan ($23.98 trillion), the People’s Bank of China said Wednesday. June’s subdued growth was even slower than economists’ forecast of 9.5%. M2 growth in May was 9.6%, which was itself a record low. For most of 2016, the growth rate of M2 was above 11.5%.

M2 refers to the so-called M1 — cash and corporate demand deposits — plus the so-called quasi-money that will not be used in short-term, including time deposits and personal savings.

Since March, banking regulators have been rolling out sweeping regulations to unwind a steroid-infused financial system and to keep systemic risks at bay. Measures include tighter oversight of high-yield wealth management products that banks sell to each other, a practice that led to surging leverage in the interbank system.

The central bank said last month that a slower M2 growth would be the new normal. On Wednesday, it maintained the view for the market going forward.

“As long as the real economy is sufficiently financed, slower M2 growth actually means a more efficient use of money in the economy,” Ruan Jianhong, head of the PBOC’s statistics department, said at a press conference on Wednesday.

During the first half, new credit — including bank loans, bond and equity issuances, and trust and entrusted loans — stood at 11.17 trillion yuan, up 1.36 trillion yuan from the same period in 2016, according to PBOC data.

New entrusted loans, a type of shadow banking activity monitored by the PBOC, was 598.8 billion yuan in the first half of 2017, down by 447.7 billion yuan from the first half in 2016.

Wen Bin, chief analyst at China Minsheng Banking Group, projected an even slower M2 growth in the near future, as growth of interbank lending and shadow banking continue to slow.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)