Chinese money supply growth slows in April, but government borrowings surge

Chinese lenders pulled back on extending credit in April, but government borrowing surged, possibly indicating that easier credit will help to sustain stronger growth until the end of the year, economists said.

The broadest measure of new credit growth in the People's Republic of China, so-called total social financing, came in at 751bn yuan for April ($115bn), well below the 1.3trn yuan anticipated by the consensus.

That comes amid signs over recent signs that policy-makers are increasingly aware of the costs of relying on policy easing too much to stave off a slowdown in the economy.

An article published on 9 May by the People's Daily, the government's mouthpiece, cited an "authoritative person" according to whom the country must face up to its soaring levels of debt and the risks it entails.

New yuan loans rose by 555.6bn yuan (consensus: 800bn yuan) and the rate of growth in M2 money supply slowed from a 13.4% year-on-year pace to 12.8% in April (consensus: 13.5%), according to data released by the People's Bank of China.

"Following signs of an upswing in the economy, policymakers have refrained from further policy easing in recent months and appear to be shifting their focus back to credit risks and structural reform. Despite this, today's credit data suggest that easing carried out during the past year is still sustaining the rebound in credit growth," Julian Evans-Pritchard said in a research note sent to clients.

While credit expansion to households and firms slowed, government borrowing surged, Evans-Pritchard said.

April saw net new issuance of 1.2trn in government bonds, mostly at the local level, much of which would serve to refinance off-budget local government debt previously included in the TSF tally, but a part of those funds would be funnelled into new spending.

"Growth in our measure of outstanding broad credit which combines TSF and government bonds rose to a 26-month high in April."

China's Ministry of Finance new requirement that all of the investment funds budgeted for the year be released by the end of the second quarter meant credit growth was likely to accelerate further and, given the typical six month lag between credit and economic activity, help sustain the current cyclical upturn until the end of 2016, "but not much longer".

However, "with further policy easing now looking unlikely, credit growth is likely to begin slowing again next quarter," he said.