China money supply growth slows amid campaign to contain risk

Bloomberg

China’s broadest measure of new credit moderated in February
as shadow banking activities slumped, signaling policy makers are making good on pledges to cut leverage and deflate asset bubbles.
Aggregate financing was 1.15 trillion yuan ($166 billion), compared with a median estimate of 1.45 trillion yuan in a Bloomberg survey. New yuan loans stood at 1.17 trillion yuan versus median estimate of 950 billion yuan. M2 money supply increased 11.1 percent versus median estimate of 11.4 percent.
The moderation in credit growth comes as policy makers pledge prudent monetary policy to manage the risk from rising debt. China set a 2017 growth target of “around 6.5 percent, or higher if possible” in Premier Li Keqiang’s work report to the National People’s Congress on Sunday. The money supply growth target was cut to 12 percent from 13 percent last year.
“Excluding seasonality, credit growth actually did not slow,” said Yao Wei, chief China economist at Societe Generale SA in Paris. “Although policy makers have repeatedly pledged to be less dovish, credit data continue to suggest a quite lenient policy setting relative to the strong growth momentum.”
“If you look at the breakdown of new yuan loans, you’ll find that the business sector is taking a larger share now. There’s a clear shift from last year when household loans made up the lion’s share,” said Gao Yuwei, a researcher at the Bank of China Ltd.’s Institute of International Finance in Beijing. “That’s in line with the improving data, which shows that the economy is getting propped up for now.”
“The Chinese New Year has a distorted factor on this month’s data as a lot of factories would shut for more than the week-long holidays,” said Liu Ke, chief strategist at Beijing StarRock Investment Management Co. “The market shouldn’t worry about a sudden tightening on liquidity, as monetary policy would be steady and neutral, and this suggests that this is it, neither too tight nor too loose.”
“A sharp slowing was to be expected after the much stronger-than-expected surge in new bank lending and total credit in January,” said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. “Further modest PBOC tightening is likely to contain excessive credit growth.” The components that make up shadow banking either moderated or fell, suggesting efforts to rein in growth in off-balance-sheet lending may already be hitting home.