M2 growth at record low
The growth of China’s broad money supply or M2 slowed to a record-low of 8.9 percent in August, indicating a tightening regulation on off-balance sheet financing, aimed at preventing systemic risk, according to the central bank.
The figure released on Friday was much lower than the market’s expectation of 9.1 percent, down from July’s 9.2 percent. The growth rate has eased for seven straight months.
The People’s Bank of China, the central bank, also released the amount of new renminbi loans in August, which surged to 1.09 trillion yuan ($166.72 billion) from 825.5 billion yuan in July, and was larger than the expected volume of around 950 billion yuan.
The stronger growth of renminbi loans went against a fast slowdown of M2 growth to some extent, indicating a new phenomenon that has been seen since the second quarter. It reflects the fact that more credit has been channeled to support the real economy while restraining expansion of “shadow banking”, as experts call it.
Shen Jianguang, chief China economist at Mizuho Securities, said that commercial banks have increased lending shown on their balance sheets, which stabilized economic growth last month.
The data, issued by the National Bureau of Statistics on Thursday, indicated a slight slowdown of industrial output and fixed-asset investment, mainly because of energy conservation and emission reduction policies. But it still remained a strong growth momentum, Shen said.
Tightening regulations on banks’ wealth management products, especially those trading in the interbank market, have slowed the M2 expansion rate, he explained, following the National Finance Working Conference’s emphasis on financial deleveraging and controls on risks.
In August, the total social financing amounted to a higher-than-expected 1.48 trillion yuan, 18.6 billion yuan more than a year earlier, according to the central bank.
A survey of Chinese banks released by PBOC on Friday showed that their confidence in the macroeconomy has strengthened, reflected by an index at 75.3 percent in the third quarter, up from 67.8 percent in the April-to-June period.
It also released the outstanding position for foreign exchange purchase of 21.5 trillion yuan, down by 821 million yuan compared with July, the 22nd straight monthly drop. This is possibly related to the slower M2 growth and more attention being paid to market liquidity in the near term, said Cao Yuanzheng, chairman of the Bank of China International Research Center.
To cut the cash amount, that’s required to be reserved by commercial banks, now may be a choice for the monetary authority to manage liquidity, he said.