(Yicai) April 14 -- The correlation between the expansion of credit in China and the country’s economic growth is not as tight as it once was.
Chinese yuan loans as a share of newly issued social financing -- a broad measure of credit and liquidity -- fell to 60 percent in the three months ended March 31, from 63.9 percent a year ago, while that of corporate bonds rose to 7.1 percent, up from 3.5 percent, and that of corporate equity sales also increased, according to figures released yesterday by the central bank.

This suggests a significant weakening in the link between credit expansion and the country’s economic growth.

Total social financing swelled by CNY14.8 trillion (USD2.1 trillion) in the first quarter, relatively high for this time of the year. Of this, new yuan lending to the real economy amounted to CNY8.9 trillion (USD1.3 trillion), or CNY796 billion (USD116.7 billion) less than last year.

Meanwhile, net corporate bond financing jumped by CNY521.3 billion to CNY1.05 trillion, and non-financial corporate domestic equity financing climbed by CNY21.1 billion (USD3.1 billion) to CNY117.3 billion.

As China’s economy restructures and upgrades, and as financing channels become more diversified, the share and growth rate of credit have both declined, experts said. Recently, the growth rates of M2, a broad money supply gauge, and total social financing have slowed while economic growth has held up relatively well, further weakening the correlation between credit growth and economic growth.

As of March 31, the outstanding balance of yuan loans stood at CNY280.5 trillion (USD41 trillion), a jump of 5.7 percent from the year before. After adjusting for the impact of local government special bond swaps, the increase in lending was around 6.2 percent, showing steady support for the real economy.

From a structural perspective, inclusive small business loans surged 10.3 percent year on year to CNY38.3 trillion (USD5.6 trillion), while medium- and long-term loans in the services sector, excluding real estate, jumped 9.9 percent to CNY61.3 trillion. Both increased at a faster clip than overall loan growth during the same period.

M2 climbed 8.5 percent to CNY353.8 trillion (USD51.9 trillion) at the end of March from the same month of last year, up from 7 percent a year ago. M1 rose 5.1 percent to CNY119.3 trillion, a relatively fast pace compared with recent years. The gap between M2 and M1 remains relatively narrow.

Analysts said M1 is more liquid than M2, better reflecting economic activity. Since the second half of last year, M1 growth has clearly picked up, keeping the M2-M1 spread within 5 percentage points for 10 consecutive months, which is quite a low level compared with the last three years and a marked improvement on the 10.1 points gap recorded in September 2024.

Lending rates remained at historically low levels in the first quarter. In March, the weighted average interest rate for newly issued corporate loans in both the yuan and foreign currencies was roughly 3.1 percent, or about 25 basis points lower than the same period last year. The rate for newly issued personal mortgages was also around 3.1 percent, down 6 bips year on year.

Editor: Kim Taylor