China Credit Growth Accelerates in June as Economy Recovers

China’s credit growth picked up in June amid strong demand for loans via banks and informal channels, signaling that the economic recovery is continuing into the third quarter.

  • Aggregate financing was 3.4 trillion yuan ($489 billion), the People’s Bank of China said on Friday. That compares to 3.2 trillion yuan in May and 2.6 trillion yuan in the same month last year.
  • Shadow banking rose 85.3 billion yuan in the month, according to Bloomberg calculations using PBOC data.
  • Financial institutions offered 1.8 trillion yuan of new loans in the month, matching estimates.
China Credit Growth Accelerates in June as Economy Recovers

Modest policy stimulus coupled with progress in battling the virus at home has led to an increasingly solid recovery in the world’s second largest economy, with output data for the second quarter due next week set to show a return to growth. At the same time, China remains vulnerable to renewed virus outbreaks, as well as the weakness of global demand for its export goods.

“Credit easing remains supportive for economic recovery,” Barclays Bank Plc economists including Yingke Zhou wrote in a note. “We expect credit growth to rise further in the second half on larger scale government bond issuance and sustained targeted easing to small- and medium-sized firms.”

Broad M2 money supply grew 11.1% from a year earlier. The stock of outstanding credit rose 12.8% in the month, the fastest pace since February 2018.

The PBOC has however slowed down the pace of monetary easing since late May amid the increasing signs of economic recovery, focusing instead on pushing banks to lend more to businesses. Governor Yi Gang pledged faster credit growth this year in a speech in June, saying the flow of total social financing should rise to at least 30 trillion yuan in 2020, which implies a 17% expansion from the level at the end of 2019.

In shadow banking, undiscounted bankers’ acceptances, mainly a means for funding small firms, jumped 218.9 billion yuan in the month, according to Bloomberg calculations.

What Bloomberg’s Economists Say..

“A recent rapid ascent in stock prices could lead to some caution at the PBOC about the pace of credit expansion and the risk of credit being diverted from the real economy to the stock market -- the 2015 bull run followed by a collapse is surely still fresh in its memory.”

Chang Shu, Chief Asia Economist

For the full note click here.

©2020 Bloomberg L.P.

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