China’s new yuan loans and money-supply topped estimates in May as the government supports economic growth while trying to limit shadow banking risks.
Local-currency loans were 870.8 billion yuan ($140 billion), the People’s Bank of China said on its website today, exceeding the 750 billion yuan median estimate of economists in a Bloomberg News survey. M2, the broadest measure of money supply rose 13.4 percent, compared with a median projection for 13.1 percent.
China is in danger of missing a 2014 target for economic growth of about 7.5 percent, prompting Premier Li Keqiang to speed up government spending and make limited cuts to lenders’ reserve requirements. The World Bank warned last week that rapid credit growth and debt accumulation by local governments are risks to financial stability.
“May is the first month this year we’ve seen a sizable easing of liquidity as evidenced by the strong new bank loans,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “It suggests that policy makers are turning more serious about the downside risks to the economy and began ramping up pro-growth measures.”
Aggregate financing, China’s broadest measure of new credit was 1.4 trillion yuan in May, matching the median analyst estimate in a Bloomberg News survey. The figure, which includes bank lending, corporate bond issuance and shadow-banking products like entrusted loans, compared with 1.55 trillion yuan in April and 1.19 trillion yuan in May last year.
The central bank this week announced a cut in reserve requirements for some regional banks to try to make more money available for rural borrowers and smaller companies. The PBOC has also added cash into the financial system to keep money-market costs stable.
Almost a year ago, a cash crunch saw China’s seven-day repurchase rate, a gauge of interbank funding availability, jump to a record 10.77 percent. The benchmark will average 3.5 percent this month, 331 basis points lower than a year earlier, according to the median estimate of 21 analysts and traders surveyed by Bloomberg.
As China’s economic growth model shifts and structural change deepens, the asset quality of the banking industry will face more severe challenges, according to Wei Guoxiong, the chief risk officer of Industrial & Commercial Bank of China Ltd.
The financing costs of 34,000 corporate borrowers monitored by ICBC grew an average of 39.59 percent annually between 2009 and 2013, 20.1 percentage points higher than their revenue growth, Wei said in an article published on June 3 in China Finance, a central bank magazine.