China: M2 growth Rebounds Strongly While Bank Lending Moderates

By Ricard Torné

This article was first published on

New yuan loans totalled CNY 775 billion (USD 124 billion) in April, which was well below the CNY 1.1 trillion recorded in the previous month. The print fell short of market expectations of loans totalling CNY 800 billion. In the 12 months up to April, new yuan loans totalled CNY 9.1 trillion (March: CNY 9.1 trillion).

Photo by Jo@net

Photo by Jo@net

Total social financing—a broader measure of liquidity in the economy that includes loans, bonds and other non-traditional instruments—also moderated significantly from the CNY 2.1 trillion recorded in March to CNY 1.6 trillion in April. The reading slightly overshot the CNY 1.5 trillion that market analysts had expected. Meanwhile, in order to manage liquidity in the money market, the People’s Bank of China (PBOC) continued to conduct its twice-a-week reverse repurchasing operations.

Annual M2 growth, the broadest measure of money supply in China, accelerated strongly to 13.2% in April, which followed the all-time record low of 12.1% tallied in March. In addition, the print exceeded market expectations of a 12.2% increase.

The PBOC released its Q1 Monetary policy report on 6 May, in which the Bank reaffirmed its stance of a “prudent” monetary policy and dashed hopes of a prompt loosening of the policy. The Bank also stated that it will maintain appropriate liquidity and achieve reasonable growth in money supply, credit and social financing. That said, some analysts claim that the PBOC should lower the reserve requirement ratio and cut the main policy rates to ensure the government’s growth target of around 7.5%. As Liu Li-Gang, chief economist for Greater China at ANZ points out:

Therefore, if the government still views that achieving a 7.5% growth target is important for its credibility, China’s monetary policy will have to play its necessary role by easing further in order to help pull the economy out of a state of lethargy. As there is little evidence that lowered money market rates have been translated into lowered lending rates, it is time for the PBoC to revert to its traditional monetary policy tool by cutting the reserve requirement ratio as well as lowering the prime lending rates.

FocusEconomics Consensus Forecast* participants expect M2 to expand 12.9% in 2014, which is unchanged over the previous month’s forecast. In 2015, the panel sees M2 growth of 12.4%.


* Note: The FocusEconomics Consensus Forecast is a monthly forecast based on many individual projections from investment banks, consultancies and think tanks. For more information, please contact us via

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