Expansion rate of money supply slows as economic growth cools
July. 13 - China's credit growth remained flat in June as the central bank maintained a prudent policy stance, figures released on Friday show.
Chinese banks added 860.5 billion yuan ($140 billion) in new yuan loans last month, up nearly 30 percent from May, but less than the 919.8 billion yuan recorded a year earlier, according to a statement on the website of the People's Bank of China.
Xie Yaxuan, head of macroeconomic research with China Merchants Securities Co Ltd, said some of the credit demand was carried forward from May because of stringent policies, resulting in the sharp monthly increase in June.
Wang Tao, chief China economist at UBS AG, said the June figure was within expectations and the year-on-year decline was a sign that credit supply growth was decelerating.
"The credit supply was growing too fast in the first five months. The pace will gradually slow in the second half," she said.
New yuan loans for the first half reached 5.08 trillion yuan. Wang forecast the full-year figure at about 8.5 trillion yuan.
That level of lending, she said, will lead to a further slowdown in economic growth in the fourth quarter after an anticipated slight rebound in the third.
According to the central bank, total social financing, which is the government's broadest measure of credit, was 1.04 trillion yuan in June, down from 1.78 trillion yuan in June 2012.
The decline was seen by analysts as a reflection of the central bank's effort to clear up off-balance-sheet borrowing.
Wang estimated that aggregate financing in the second half will be reduced further to between 6 and 7 trillion yuan, compared with 10.15 trillion yuan in the first half.
The broad money supply (M2) expanded 14 percent year-on-year to 105 trillion yuan as of the end of June. The growth rate was 1.8 percentage points lower than in the previous month.
Experts said money supply growth might continue declining in the second half amid a cooling economy.
"The slower M2 growth was a result of the central bank's liquidity management measures taken last month," Wang said.
The figures were the first to come from the central bank after last month's money market turmoil, which resulted from the bank's efforts to stamp out speculative lending.
The cash squeeze sent interbank borrowing costs to record highs.
Xie said the measures had actually been aimed at better management of liquidity and changing the expectations for policy easing, not a credit squeeze, and the current stance remains a prudent one.
The State Council said in a report last week that monetary policy would not be loosened because of the economic slowdown, and it would not become stringent because of rapid growth in credit supply.
PBOC Governor Zhou Xiaochuan, speaking in an earlier interview with news media, said the central bank will maintain its prudent monetary stance and properly adjust liquidity to keep the market stable overall.
Guo Tianyong, director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics, said banks should maintain an appropriate credit level to support the real economy.
He suggested there should be fine-tuning in policies because they affect small business, agriculture and the urbanization process.
Also according to the statement, China's foreign-exchange reserves, the world's biggest, rose to $3.5 trillion at the end of June from a previous record of $3.44 trillion at the end of March.