(Yicai Global) Aug. 14 -- China's broad money (M2) supply grew 8.5 percent on the year last month, beating expectations and June's 8 percent expansion, according to data published by the People's Bank of China.
Social financing fell below market expectations to CNY1.04 trillion (USD151 billion), the central bank data published yesterday revealed. Loans to the real economy gained CNY371 billion to tally nearly CNY1.3 trillion over the period.
"New loans exceeded expectations due to policy support," said E Yongjian, chief financial analyst at the Bank of Communications' research center. "PBOC has increased funding to provide liquidity support for banks and encouraged lending in target areas, such as small firms and infrastructure projects.
"The growth in money supply has also recovered because of the rise in new loans. In general, the policy push brought with it a rebound in financing growth and strengthened support for the real economy," he added.
The China Banking and Insurance Regulatory Commission has unveiled a slew of measures aimed at increasing lending after the Chinese Politburo decided earlier this year to push banks into better serving the real economy. With ample liquidity in the interbank market, commercial banks need to be incentivized into doing that, one expert told Yicai Global.
"It's a sign of easing credit policies," added Liao Zhiming, chief banking analyst at TF Securities. "Lending more is now the focus for Chinese regulators."
Credit is likely to keep expanding in the second half and could push 2018 new loans to around CNY17 trillion (USD2.5 trillion), 26 percent more than last year, Liao continued, adding that there could be CNY1.3 trillion worth of new loans issued each month for the rest of the year. Some CNY10.5 trillion worth of fresh credit was doled out in the first seven months.
"The transition to an easy credit system is still happening slowly, despite the introduction of policies in July amid a lax monetary policy and historically low short-term interest rate," said Ming Ming, chief fixed return analyst at Citic Securities.
"Encouraging commercial banks to accelerate lending through window guidance, coupled with proactive fiscal policy or increased investments in infrastructure to boost the real economy could prove more effective," Ming added. "The financing guarantee fund will also convince banks to loan to micro-, small- and medium-sized enterprises and relieve them from the current credit crunch."
China's finance ministry announced in March that it would set up the CNY60 billion (USD8.7 billion) fund to guarantee loans of around CNY500 billion over the next three years to support the development of smaller companies and the rural sector.