China's new yuan loans rise in May, M2 growth slows

BEIJING - China's new yuan loans continued to increase in May with money pouring into the real economy but M2 registered unexpectedly low growth.

China's banks issued a combined 1.1 trillion yuan ($160 billion) of new loans in the last month, an increase of 126 billion yuan from a year ago, according to the People's Bank of China (PBOC) website Wednesday.

As of the end of May, total outstanding yuan-denominated loans stood at 113 trillion yuan, up 12.9 percent year on year, the same pace as April.

The rising figures were mainly attributed to stable loans to the real economy. Medium and long-term loans to households, mainly used for home purchases, logged 433 billion yuan, while those to non-financial enterprises, institutions and organizations were 440 billion yuan.

The newly added total social financing (TSF), another significant financing gauge, increased by 386 billion yuan from the same period a year ago to 1.1 trillion yuan in May.

E Yongjian, an analyst with Bank of Communications, said the data showed the economy still had strong financing demand, citing new yuan loans well above the 1-trillion-yuan mark and robust corporate lending.

M0, the amount of cash in circulation, was up 7.3 percent to 6.7 trillion yuan.

M1, a narrow measure of money supply which covers cash in circulation plus demand deposits, rose 17 percent to 49.6 trillion yuan, slowing from a 18.5 percent increase in April and a 23.7 percent rise a year ago.

M2, a broad measure of money supply that covers cash in circulation and all deposits, only expanded 9.6 percent, slowing for a fourth straight month.

The PBOC said in a separate statement that the slowdown in M2 came as the result of the financial de-leveraging and strengthened supervision.

De-leveraging dragged down M2 growth by one percentage point, the PBOC said, citing slowing expansion in bank equity investment related to interbank business, asset management, off-balance sheet financing and shadow banking.

Fiscal deposits, which increased 555 billion yuan in May, up from the increment of 393 billion yuan a year ago, also dragged down M2 growth by 0.3 percentage points.

The PBOC dismissed any huge effect from slowing M2, saying systemic risks were reduced and capital chains were shortened.

"Lower M2 growth rate is likely to become the new normal along with the de-leveraging and stronger financial support for the real economy...There is no need for excessive attention or interpretation."

China's M2 growth target this year was set at around 12 percent, one percentage point lower than the 2016 target.

The central bank said it will continue to push forward financial de-leveraging while managing the "strength and pace" of its policies to stabilize market expectations, balancing de-leveraging and stable liquidity."