China: Stronger than expected aggregate financing in April – Nomura

China’s M2 growth ticked up modestly to a weaker-than-expected 8.3% y-o-y in April from 8.2% in March (Consensus: 8.5%; Nomura: 8.8%) and was partly driven by the 100bp targeted reserve requirement ratio (RRR) cut in late April, which Nomura viewed as an effort to keep liquidity conditions stable, rather than a shift to monetary easing, explains the research team at Nomura.

Key Quotes

“Credit supply was largely stable in April. New RMB loans was almost unchanged at RMB1180bn (March: RMB1120bn), slightly stronger than expected (Consensus: RMB1100bn; Nomura: RMB1000bn). New loans to the household sector decreased slightly while those to the corporate sector increased modestly. The growth of outstanding loans slowed by 0.1 percentage points (pp) to 12.7% y-o-y in April.”

“Aggregate financing came in at a stronger-than-expected RMB1560.0bn (Consensus: 1350bn; Nomura: RMB1300bn) from an upwardly revised RMB1332.3bn in March. The surprise was mainly driven by shadow banking activities and bond financing.”

“The growth of outstanding aggregate financing remained unchanged at 10.5% y-o-y. Adjusted for distortions caused by the replacement scheme of local government financing vehicle bonds, growth of augmented aggregate financing (aggregate financing and local government bond issuance) moderated by 0.1pp to 12.0% y-o-y in April.”

“We believe authorities will maintain a neutral monetary policy stance, as they have reiterated many times. M2 growth will likely remain stable in Q2 but resume its moderation in H2 due to a peaked financial cycle and the government’s continued deleveraging efforts. We maintain our call for a 50bp RRR cut in H2 to keep liquidity conditions stable.”