Banking & Finance

China’s May mortgage and money supply growths slow as controls take effect

PUBLISHED : Wednesday, 14 June, 2017, 10:51pm
UPDATED : Wednesday, 14 June, 2017, 11:29pm

Growth in mainland China’s mortgage loans and money supply slowed in May, a sign that tightening measures to control property prices and reduce leverage in the country’s financial system are taking effect, according to central bank data released on Wednesday.

More broadly, economists said the growth of aggregate financing might slow down in the coming months due to regulators’ ongoing efforts, but the central bank also faced a delicate balancing act to defuse financial risks without choking economic growth.

Mid- and long-term household lending – a proxy of mortgage loans – grew by 432.6 billion yuan in May, down from 444.1 billion yuan in April and the monthly average of 486.7 billion yuan in the first quarter, according to data from the People’s Bank of China website.

“Mortgages and burgeoning household leverage aren’t major concerns now as tightening measures from major cities continues to take effect,” said David Qu, a market economist at ANZ in Shanghai, adding mortgages growth is set to slow down in the future.

Capital Economics economists Chang Liu and Mark Williams agreed. They wrote a note that the government’s efforts to cool the property market are continuing to bite.

Major cities including Beijing and Shanghai have increased down payment requirements, strengthened controls on selling prices, restricted purchases by non-locals and second-home buyers and cracked down on residential flats built on commercial and office land to curb speculation and irregularities.

Wednesday’s data also showed than yuan loans grew by 1.1 trillion yuan in May, as lenders lent more to corporates as Beijing steps up measures to root out irregularities and trim leverage levels among financial institutions.

Such measures include cleaning up of banks’ murky wealth management products and tightening rules on interbank lending, putting a lid on shadow banking and leaving less liquidity available for speculative investments in the equities market.

Aggregate financing, which measures the overall financing support to economic activities, grew by 1.06 trillion yuan in May, and down from 1.39 trillion yuan in April.

Growth of M2, a broad measure of money supply, slowed to a record low of 9.6 per cent in May, from 10.5 per cent in April. In a rare interpretative move , the central bank tried to guide market expectations of the decelerating growth in M2 as deleveraging ploughs on.

“Overly rapid financial deleveraging could add further pressure on financial institutions’ liquidity and shore up corporate financing cost as a result,” said Chen Ji, a senior researcher at Bank of Communications in Shanghai.

“In the future, we expect a more delicate balance in guarding against liquidity risks and avoiding sharp rise of financing cost for corporate side,” Chen said.