Chinese credit growth continued to slow in March, adding to concerns about a broader economic slowdown.
Outstanding loans were up 13.9% year-over-year, down from the 14.2% pace of growth in the previous month. M2, a broad measure of money supply was up 12.1% YoY, lower than expectations for a 13% rise, and down from 13.3% the previous month. This was the slowest growth on record.
While new loans were up to 1.05 trillion yuan in March from 645 billion yuan the previous month, liquidity is still thought to be tight.
Finally, total social financing (TSF) jumped to 2.07 trillion yuan, from 939 billion yuan the previous month, and above expectations for 1.85 trillion yuan. But TSF was down 19% on the year. TSF refers to financing available to the economy from the financial sector, which includes trust loans, entrusted loans, FX loans, bankers’ acceptance bills, corporate bonds, and non-financial stock sales.
Bank of America’s Ting Lu writes that new trust loans were down after the “near-default of one trust loan in January and the government’s proactive measures in controlling risks in the trust sector.”
We also saw the implications of China’s first corporate bond default. While new corporate bonds surged to 252 billion yuan, up from 100 billion yuan the previous month, the demand was largely for riskless and high investment grade bonds.
“The y/y slowdowns in money and credit growth rates suggest near-term weakness in economic growth,” according to Jian Chang and Jerry Peng at Barclays.
“On the other hand, the better-than-expected March new loan and total financing support the view that financing channels remain open to stabilise growth as demand recovers. We expect this improvement to continue in Q2.”
Societe Generale’s Wei Yao has previously said that so far the credit slowdown was “mostly responding to higher interbank rates, as intended by the PBoC.” Here on out she expects it to be from “regulatory tightening of the Document 107,” which is intended to clamp down on shadow banking.
Aware of China’s growing debt burden, policymakers are trying rebalance the economy and pushing deleveraging, but this is expected to cause some pain in the near term.
We’ll be covering Q1 GDP growth out 10 p.m. ET on Tuesday.
Here’s a look at moderating Chinese credit growth: