China eases credit flow to fight slowdown
Money supply rises 13.4 per cent in May amid solid increase in new loans after Beijing urges banks to support smaller and rural businesses
The mainland authorities appear to have boosted credit supply amid slowdown fears, with data showing yesterday that banks extended more loans last month than in April.
New loans amounted to 870.8 billion yuan (HK$1.08 trillion), compared with 774.7 billion yuan in April, the People's Bank of China said.
The broad gauge of money supply, M2, rose 13.4 per cent from a year earlier, faster than the 13.2 per cent gain in April.
The increase in credit, although still moderate, comes on the heels of the government asking banks to step up support for the country's vulnerable sectors, such as smaller and rural businesses.
Beijing has, however, refrained from wider easing to avoid fuelling financial risks.
At a recent meeting, Premier Li Keqiang warned provincial leaders about the dangers of missing the economic growth target, set at "about 7.5 per cent" for this year, urging them to ensure central policies are well executed. He also asked ministries to tackle problems such as slowing investment and tight credit.
The economy expanded 7.4 per cent in the first quarter from a year earlier, the slowest in six quarters.
The National Bureau of Statistics is due to publish today new economic data for last month, including those for industrial output and fixed-asset investment.
"The broader picture is that although government efforts have helped stabilise credit growth, policymakers have so far avoided an across-the-board loosening," said Julian Evans-Pritchard, an economist at Capital Economics.
While more moderate credit increases were likely, he said, "We see no great need or desire among policymakers to drive a marked rebound in broad credit growth."
The government has been adding liquidity gradually in recent months, including cutting select banks' reserve requirement ratios to inject more funds into the banking system.
The central bank also offered 300 billion yuan of relending to the China Development Bank to redevelop slum areas, according to media reports.
Meanwhile, the Ministry of Finance urged local governments to accelerate fiscal spending so that more projects could be launched. National fiscal expenditure last month jumped 24.6 per cent from a year earlier.
Economists expect the policy easing will help stabilise growth in the third quarter, although some say this quarter's performance may still slow from the previous three months.
Barclays Capital said it saw "some upside risk" to its growth forecast of 7.2 per cent for this year, citing the monetary easing steps taken so far and those likely to come in the coming months.
Aggregate financing, which includes loans issued through non-banking channels, fell to 1.4 trillion yuan last month from 1.55 trillion yuan in April, as regulators retained tight control over shadow-banking lending.
Analysts say the PBOC may have injected liquidity pre-emptively in a bid to prevent another liquidity crunch hitting the banking system as it did in June last year. Aggregate financing stood at 1.19 trillion yuan in May last year.