China’s Credit Growth Slows in July as Stimulus Pared Back

(Bloomberg) -- China’s credit growth slowed much more than estimated in July after a strong rebound in recent months, reflecting a drop in short-term financing and a more measured pace of monetary easing as the economic recovery continues.

• Aggregate financing was 1.69 trillion yuan ($243 billion), the People’s Bank of China said on Tuesday. That compares to 3.4 trillion yuan in June.
• The median estimate of economists was 1.85 trillion yuan. There is usually a drop in July compared to June, but the amount is still above the 1.29 trillion yuan recorded in July 2019.
• Financial institutions offered 992.7 billion yuan of new loans in the month, lower than estimates of 1.2 trillion yuan.

Key Insights

• The stock of outstanding credit grew 12.9% in the month, slightly faster than in June, with continued growth in medium and longer loans even as short-term financing shrank.
• China’s economic recovery has gained traction in recent months as industrial output accelerated and global demand picked up, prompting policy makers to shift away from crisis-mode stimulus to a more targeted approach.
• In July, the politburo called for reasonable credit growth to continue and for average funding costs to be lowered in the second half of this year.
• “The most important thing is the structure rather than then sheer number,” said Wen Bin, a researcher at Minsheng Bank in Beijing. “Although the new yuan loans are smaller than expected, the reduction is mostly from the short-term lending to the non-financial sector while mid-and-long term lending increased.”

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• Broad M2 money supply grew 10.7% from a year earlier.
• Shadow banking fell about 265 billion yuan in the month after rising for four straight months.
• Corporate and government bond issuance also slowed from June.
• “Slowed credit expansion reflects the change in monetary policy stance as financial risks rise,” said Xing Zhaopeng, an economist at Australia and New Zealand Banking Group Ltd in Shanghai. “Loans to non-banking financial institutions declined, showing policymakers’ efforts to curb stock bubbles.”

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With assistance from Bloomberg