M2 Growth Eases as Analysts Points to Stabilisation of Chinese Monetary Policy


The latest official data from the Chinese central bank points to easing month-on-month growth in the M2 money supply last month.

Data released by the People’s Bank of China (PBOC) indicates that as of the end of July the broad M2 money supply balance stood at 212.55 trillion yuan, for YoY growth of 10.7%, and a deceleration of 0.4 percentage points compared to the end of last month.

The rate of growth for July also marked an acceleration of 2.6 percentage points compared to the same period last year, as well as the fifth month of double digit increase.

In July the total social financing (TSF) increase was 1.69 trillion yuan, 406.8 billion yuan more than the figure for the same period last year.

992.7 billion yuan in new renminbi loans were extended in July, 63.1 billion yuan less than the figure for the same period last year.

Wen Bin (温彬), a researcher with China Minsheng Bank, said that following China’s effective control of the COVID-19 pandemic the Chinese economy had shown positive signs of improvement.

At the policy level China has started to stress targeted guidance of monetary policy, as well as maintaining overall financial moderation and rational growth.

According to Wen the deceleration in M2 growth presages a shift in monetary policy from macro-adjustment to structural optimisation.

“The deceleration in M2 growth embodies a return to stability in monetary policy,” said Tang Jianwei (唐建伟), chief economist with the Bank of Communications Financial Research Centre, who highlighted several reasons for an on-month decline in M2 growth:

  1. Monetary policy returning to a model of stable moderation, liquidity emphasising flexible moderation and targeted guidance, as well as greater stress or pacing and structural optimisation;
  2. Loan growth lower than expectations, with loan growth falling from 13.2% to 13.0%;
  3. While June and July saw a reduction in bond issuance to make space for the issue of special treasury bonds, the actual volume of maturing bonds on the market was comparatively large, which means that credit creation via bond purchases by financial institutions was lower than expected.

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