A slowdown in off-balance sheet lending by commercial banks has dragged growth in the M2 money supply to historically low levels.
Data released by the People’s Bank of China on 12 July indicates that as of the end of June the M2 balance was 163.13 trillion yuan for YoY growth of 9.4%, marking the second consecutive month that M2 YoY increase fell below the 10% threshold.
The figure is roughly in line with a consensus forecast by Chinese economists of 9.5%.
The M2 YoY growth rate for June marks a declines 0.2 and 2.4 percentage points compared to the previous month and the same period last year respectively.
Ruan Jianhong, PBOC’s head of statistics, said at a press conference that the slowdown in the M2 money supply was the “objective” result of internal deleveraging within the financial sector, and that low monetary growth could be “the new normal” for the Chinese economy.
“As long as the rational financing needs of the real economy are satisfied, easing in M2 growth in actuality reflects an increase in the turnover efficiency of existing money, and M2 growth which is lower than in the past could become the new normal,” said Ruan.
The M1 money supply for June rose 15% YoY to 51.02 trillion yuan, for an increase in growth rates of 2 and 9.6 percentage points compared to the preceding month and the same period last year.
PBOC data also indicates that total social financing increased by 1.78 trillion in June, for an increase of 128.3 billion compared to the same period last year. Total new social financing in H1 2017 was 11.17 trillion yuan, for an increase of 1.36 trillion yuan compared to the same period last year.
Ruan said shifts in social financing in H1 2017 was marked by several distinct characteristics, such as a sizeable YoY increase in both RMB and foreign currency lending to concerns in the real economy, as well as a large YoY increase in trust loans and banker’s acceptances of 1.03 trillion yuan and 1.85 trillion yuan respectively.
Entrusted loans saw a slowdown in their growth, as did corporate bond and stock financing.