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China’s slower credit growth underscores worries over economy

China's broadest measure of new credit slowed, underlining concerns about the economy that have prompted authorities to start doing more to support growth.

[BEIJING] China's broadest measure of new credit slowed, underlining concerns about the economy that have prompted authorities to start doing more to support growth.

Aggregate financing stood at 1.04 trillion yuan (S$207.8 billion) in July, the People's Bank of China said on Monday. That was slower than the 1.39 trillion yuan in June, using the central bank's new calculation method for this data

The new index includes more types of credit and so isn't comparable to Bloomberg's survey or the data reported in previous months

New yuan loans stood at 1.45 trillion yuan, versus a projected 1.275 trillion yuan and 1.84 trillion yuan the previous month

Broad M2 money supply rose 8.5 per cent, rebounding from record low expansion in June

Policy makers have pulled back on the pace of tightening and encouraged banks to lend more to counter a slowing economy and what looks like a potentially prolonged trade war with the US. Still, the chances of across-the-board stimulus has so far been ruled out, with policy makers continuing to keep a wary eye on the country's debt pile.


The central bank's new measure of aggregate financing includes banks' asset-backed securities and loan write-offs.

Using this new calculation, aggregate financing expanded by 1.39 trillion yuan in June, compared to a 1.18 trillion yuan expansion under the old measurement. The bank released historical data back to January 2017 for the new index.

"Policy makers are sticking to the direction of cracking down on shadow banking, and moving loans onto balance sheets," said economist Xie Yaxuan at China Merchants Securities Co. However, "the steep fall in shadow banking we saw in June isn't sustainable either. China's still in a period of transmitting monetary easing to credit expansion."

The shadow banking sector continued to shrink, falling by about 489 billion yuan in July after a 691.7 billion yuan drop in June.

Earlier easing measures are yet to have an effect on credit extension with July's aggregate financing slowing on the continued contraction of shadow banking, said Xia Le, Banco Bilbao Vizcaya Argentaria SA's chief Asia economist in Hong Kong.

"Aggregate financing may pick up a little toward the end of the year with the pace of shadow banking contraction slowing, but it won't become a major source for credit supply again."

Including asset-backed securities in its measure is a way for the central bank to "dress up" the aggregate financing number to show financial resources are still on the rise, said Victor Shih, a professor at the University of California in San Diego who studies China's politics and finance.

The sudden growth of asset-backed securities may suggest that the authorities are allowing funds and trust companies to use interbank leveraging to finance purchases of asset-backed securities, which will once again jump-start off-balance-sheet credit growth, he said.

"Since 2011, marginal financing has come mainly from off-balance-sheet shadow financing," he said. "Regulations in the past year have made the growth of shadow finance problematic. Thus, the increase in on-balance sheet lending was not enough to make up for the shrinkage of shadow financing."

Data for monthly bank loans released by the PBOC match figures issued earlier over the weekend by the China Banking and Insurance Regulatory Commission.