Experts: Money, credit supply set to rebound in H2

China’s money and credit supply is set to rebound in the second half of the year, after modest declines in recent months and stimulate economic growth despite inflation concerns and deleveraging efforts, experts said.

Total social financing, a measurement of funds the real economy receives from the financial sector, rose by 1.92 trillion yuan ($300.1 billion) in China in May, down 1.27 trillion yuan from the amount last year.

Outstanding total social financing reached 297.98 trillion yuan by the end of May, up 11 percent on a yearly basis. The growth slowed from 11.7 percent in April and 13.3 percent in February, mainly due to a slowdown in government bond financing and waning shadow banking activities due to tighter regulatory scrutiny, experts said.

New total social financing has declined as most of the enterprises are in a better situation this year, said Li Xunlei, chief economist at Zhongtai Securities.

“Beijing seems to be more keen on reining in financial risks related to local government borrowing. As a result, local governments have become more cautious about increasing debt,” said Lu Ting, chief economist in China with Nomura Securities.

Indications that the government is thinking in this regard came after it tweaked the 2021 annual government bond issuance quota. Both the central and local governments have only completed 24 percent of the total net financing in the first five months this year, according to the Ministry of Finance.

To prevent a growth slowdown in the second half, Beijing is expected to speed up government bond financing in the coming months, by completing the balance 5.2 trillion yuan of net financing out of the budgeted 7 trillion yuan, said Lu.

“Authorities may even ease restrictions on some types of financing later this year, which will help the outstanding total social financing growth rebound to above 11 percent,” Lu said.

Inflation concerns will not be a constraint for maintaining money and credit support to the real economy, as it is mostly centered on the production sector due to higher commodity prices, which is not a long-term concern, experts said.

Authorities should continue to enact targeted fiscal measures to sustain a balanced and inclusive recovery, while the policy stance needs to ensure that liquidity is adequate and credit growth is supportive, said a report released by the ASEAN+3 Macroeconomic Research Office on Thursday.

Money and credit supply has in recent months steadily supported the growth of the real economy, said Li from Zhongtai Securities. During the first five months, the country’s aggregate new yuan loans stood at 10.6 trillion yuan, up by 359 billion yuan from a year earlier.

The central bank said that new yuan loans rose to 1.5 trillion yuan in May, compared with 1.47 trillion yuan in April.

The data also indicated the continuity, stability and sustainability of monetary policy, which also reflects the central bank’s priority to maintain a stable policy stance, while focusing on cross-cyclical balance of supply and demand, said Li.