M2 Year-on-year Growth Seen Easing to 10.3% in May


Market observers expect growth in China’s M2 money supply to dial back slightly as financial regulators crackdown on credit extension by banks.

According to China Securities Journal the general consensus amongst market expects is that credit growth in May ease to under 1 trillion yuan, while year-on-year growth in the M2 money supply will be held back by M1 growth and fall to 10.3%.

Lu Zhengwei, chief economist with Huafu Securities, expects new loans to fall by 350 billion yuan in May compared to April for a total of 750 billion yuan.

While April loan growth beat market expectations, Lu expects intensifying action from regulators to leave little likelihood of credit growth surpassing forecasts.

According to Lu historical data indicates that M1 year-on-year growth is largely consistent with year-on-year growth in housing sales, which according to high-frequency data saw ongoing declines in May.

For this reason he expects M1 year-on-year growth to fall to around 17.5% in May, holding M2 year-on-year growth back at 10.3%, for a decline compared to the preceding month of 0.2 percentage points.

“Since the start of the year M2 has continued to languish, while growth in the social financing balance remains higher than the 12% target,” said Lu. “Part of the reason for this could be that the pace of local debt replacement is slowing due to high financing costs on the debt market.”

A report recently released by China International Capital Corporation pegs new RMB loans at roughly 900 billion yuan in May, and new social finance (a broad measure of the money supply considered roughly commensurate with M2) to fall slightly to 1.1 trillion yuan.

CICC expects restrictions on off balance-sheet financing as well as net negative debt origination by Chinese enterprises to lead to the volume of new social financing only slightly higher than the total amount of new loans in May.