Caixin
Aug 15, 2017 07:33 PM
FINANCE

China M2 Grows at Record Low Pace

(Beijing) — China’s broader money supply expanded at a record-low pace in July while credit growth continued to pick up, as the country continues with its slow path toward slimming down a supercharged economy.

In July, the M2 grew 9.2% from a year earlier to 162.9 trillion yuan ($24.43 trillion), the People’s Bank of China (PBOC) said Tuesday. Economists had expected a 9.5% increase from a previous record-low 9.4% increase in June. For most of 2016, the growth rate of M2 was above 11.5%.

M2 refers to cash and checking deposits — the so-called M1 — plus assets such as money market securities and mutual funds that can be converted quickly into cash.

The outstanding value of bank loans stood at 115.4 trillion yuan as of the end of last month, up 13.2% from the same period in 2016. The outstanding total social financing, the PBOC’s measure of broader credit, increased by 12.4 trillion yuan in July and up by 21.1% from a year ago.

Except for stepped-up efforts by regulators to cut financial leveraging, a slower growth of M2 also shows the money-creation effect has reached a limit at a time when the injection of base currency has been strictly controlled, said Liu Dongliang, senior analyst at China Merchants Bank Co. Ltd.

Regulators in China have been stepping up efforts to rein in excess lending and borrowing within the financial system in a bid to guard again systemic risks when the economy is losing momentum. The ratio of M2 to gross domestic product, a measure provided by Bloomberg that tracks the expansion of the money supply as a percentage of total economic output, dropped to 208.58% as of the end of the second quarter, from 209.58% as of the end of the previous quarter.

The fast-growing broad money supply in recent years was mainly due to a rapid growth of interbank lending and wealth management products (WMP), in which banks sell to individuals and invest most of the proceeds in the bond market, the central bank said Friday.

A slower growth of M2 in recent months is the result of tightened financial regulations to rein in excessive use of capital in a complex web of investments, said the central bank, adding that a subdued growth of M2 would become normal as the bank carries on with the deleveraging campaign.

In July, the value of entrusted loans, trust loans and undiscounted banker acceptance bills — the major components of shadow banking activities tracked by the central bank — fell by 64.4 billion yuan combined, the first drop since the beginning of this year.

Meanwhile, companies raised 284 billion yuan in net value by issuing bonds in July, up by 63.2 billion yuan from the same period last year.

“Growth in corporate bonds rose for the first time since July 2016, most likely in response to recent declines in bond yields,” said Julian Evans-Pritchard, a China economist at Capital Economics.

China Merchants Bank’s Liu said, “Given the fact there were few financing activities in the credit bond market in the first half, the pent-up demand for funds will drive up the issuance of corporate bonds in the rest of the year.”

Contact reporter Dong Tongjian (tongjiandong@caixin.com)

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