China’s Broad Credit Grows by $176.4 Billion in June

China’s total social financing, a broad measure of credit in the economy, rose by 1.18 trillion yuan ($176.4 billion) in June, a significant increase on May’s 760.8 billion yuan but still below analyst expectations, data from the central bank showed on Friday.

Total social financing includes off-balance-sheet financing, and can provide hints about activity in China’s “shadow banking” sector. China’s regulators have been clamping down on off-balance-sheet shadow lending to rein in financial risks, which is a key government priority this year.

Banks extended 1.84 trillion yuan in net new yuan loans in June, 690 billion yuan more than May’s level of 1.15 trillion yuan and 305 billion more than a year ago, the People’s Bank of China (PBOC) said.

This was higher than anticipated, said Julian Evans-Pritchard, senior analyst at Capital Economics. However, this was more than offset by a slowdown in other forms of credit. “A further slowdown in lending adds downside risks to growth and is likely to trigger a policy response,” he said in a note.

Total social financing growth rose to 9.1 trillion yuan in the first half of 2018, data from the central bank showed, 2.03 trillion less than the same period last year. The sharp contraction in off-balance-sheet financing has already challenged the real economy’s ability to access financing, China Merchants Bank analyst Liu Dongliang said in a note. If total social financing continues to show weak growth, credit risks will increase in the second half of this year, Liu said.

“We think the PBOC will soon decide to act more aggressively, including by cutting benchmark lending rates, in order to prevent the economy from slowing too rapidly,” Evans-Pritchard said.

China’s M2, the broad measure of money in circulation, grew 8% from the end of June 2017 to the end of June 2018, according to data released by the central bank, down from May’s 8.3% and the slowest growth since the official data sequence began in December 1999.

Contact reporter Ke Baili (bailike@caixin.com)