Disappointing Chinese Money And Macroeconomic Data Indicate The Need Of Further Easing

China money and credit growth surprised to the downside in July, suggesting that growth remains limited while the economy has bottomed out. Meanwhile, a series of macroeconomic data showed further signs of softening in the economic outlook. As unveiled in PBOC’s latest money and credit report, broad money supply (M2) grew +13.5% y/y in July, decelerated from +14.7% a month ago. While a high base effect in July 2013 might have partial effect, the moderation was driven by the sharp fall of new loans amidst weakness in underlying demand and increased credit and default risks. Outstanding CNY loan growth eased to +13.4% y/y in July from +14% in the prior month. New loans shrank to RMB 385.2B from RMB 1 080B in June, compared with market expectations of RMB 780B. Newly increased Total Social Financing (TSF) slumped to RMB 273.1B from RMB 1.97 trillion in June. From a year ago, TSF grew +16.3% y/y in July, following a +16.9% in the prior month

Looking into the details of the loan data, new corporate loans dropped to RMB 177B last month, compared with RMB 727B in June and RMB 392B the same period last year. Short-term loans under this category were -RMB 236B, compared with RMB354B in June. Meanwhile, new entrusted loans and new trust load also showed sharp deterioration during the month. We attribute the reversal to the end of the semi-annual auditing season. Part of the lending that the banks put onto their book was removed in July after auditing period, resulting in the apparent contraction in July. Indeed, the outflow of RMB 1 980B in domestic deposits, compared with inflow of RMB 3 790 in June and outflow of RMB257B in the same period last year, can also be attributed to the above-mentioned window dressing effect. Short-term deposits the banks attracted so as to fulfill the auditing requirement disappeared once auditing is done.

In a separate report, it’s seen that China’s industrial output rose +9% y/y in July, moderating from June’s 9.2%. Fixed asset investment grew +17% y/y in the first 7 months of the year, compared with +17.3% in the first 6 months. Meanwhile, retail sales also surprised on the downside, gaining +12.2% y/y after a +12.4% increase in June

On the whole, the data indicates that China’s economic recovery has remained fragile and the upside momentum to growth is limited. Various downside surprises suggest that the PBOC should implement further monetary easing in order to achieve the +7.5% growth target

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