China records higher new loans, slower broad money expansion in H1

Chinese banks extended close to 8 trillion yuan of new lending in the first half of the year, but broad money supply growth has continued a downward trend.

China's Central Bank said the figures mirror their efforts of financial deleveraging, aimed at defusing risks and solid financial support for the real economy.

People's Bank of China [Photo: baidu.com]

M2 is a broad measure of money supply that covers cash in circulation and all deposits. It reflects the general purchasing power of money from society.

As of the end of June, the year on year growth rate of M2 slowed by 0.2 percent from a 9.6 percent growth rate recorded a month ago.

Sheng Songcheng, an adviser to the People's Bank of China, said the slower M2 expansion was a result of financial deleveraging and there is no need for excessive interpretation.

"This time, M2 expansion stayed below ten percent. It indicates a decrease in off balance sheet financing, and indicates that measures taken to deflate economic bubbles have achieved results," Sheng noted.

At the same time, the newly added total social financing, another significant financing gauge, increased by 12 percent year on year to over 11 trillion yuan in the first half.

The Central Bank said the increase in total social financing indicated solid financial support for the real economy.

Ruan Jianhong, head of the central bank's surveys and statistics department, further explains:

"Most of the new medium and long-term lending in the first half has flowed into service and high-tech manufacturing industries, while only 5.4 percent of the outstanding loans by the end of June belonged to industries with excess capacity. The lending has been made more rationally and the structure of loans has been constantly optimized."

The central bank has tried to strike a balance between financial deleveraging, aimed at defusing risks and shoring up economic growth.

Also, China's foreign trade saw brisk growth, buffering the economy from a slowdown in the face of headwinds at home and abroad.

Exports in yuan-denominated terms rose 15 percent year on year in the first half of 2017, while imports increased 25.7 percent.

Total foreign trade volume reached over 13 trillion yuan in the year to the end of June, up 19.6 percent year on year, the quickest pace since the second half of 2011.

Yan Min is with the macroeconomics department of State Information Center.

"The world economic situation has seen a modest recovery since January this year and the second half of last year, which promoted China's exports. In addition, the increase in foreign trade volume was related to our country's promotion of supply-side structural reform and macroeconomic development," Yan said.

However, the authorities say China's foreign trade may still face a tough situation in the second half of this year due to uncertainties in the global environment and deep-seated problems in the domestic economy.

They do note, however, that the strong fundamentals of China's foreign trade have not changed and the trade structure will be improved if no major risks arise.