China posts strong credit growth in June, M2 money supply grows CNY 2.99 trillion

The M2 money supply growth recovered in June after reaching a record in May. In June, the M2 money supply grew by CNY 2.99 trillion in June, a decent performance when compared with the average growth of CNY 1.35 trillion in the first half of 2017 or CNY 1.64 trillion in the first half of 2016. But subdued M2 growth in April and May posed a drag on the overall M2 growth rate. Given this the M2 growth is expected to gradually recover in years ahead as the impact of the drag eases, noted ANZ in a research report.

Aggregate financing might better reflect China’s monetary condition, instead of M2, amidst the period of financial deleveraging. Although the M2 money supply printed at a record low of 9.4 percent, aggregate financing grew 12.8 percent in the first half of this year, as compared with 12.4 percent in the first half of 2016. The decent growth of aggregate financing shows a relaxation of lending policy by the authorities. Therefore, it is not necessary for the People’s Bank of China to take action as a response to the slow M2 growth, stated ANZ.

The solid new yuan loans and aggregate financing figures augur well for the economic activity data for June and next week’s second quarter GDP release. Aggregate financing grew CNY 4.23 trillion in the second quarter of 2017 as compared with CNY 3.11 trillion in the same period of last year. Mid-and long-term new yuan loans also witnessed growth of CNY 2.9 trillion as compared with CNY 2.07 trillion seen in the second quarter of 2016.

“The increase in funding demand mirrors a strong investment pipeline. Q2 GDP will likely beat the official target of 6.5 percent y/y (market: 6.8 percent; ANZ: 6.7 percent)”, added ANZ.