(Yicai) Nov. 14 -- China’s broad money supply, also known as M2, and the total amount of social financing expanded at a faster pace in October than a year earlier, according to the latest data. Lower borrowing costs and increased government bond issuance are the main drivers of this growth, industry insiders said.

China's M2 balance surged 8.2 percent in October from the year before to CNY335.1 trillion (USD47.2 trillion), according to data released by the People’s Bank of China yesterday. This is 0.8 percentage point higher than the same period last year.

Total social financing edged up 0.7 percentage point to CNY437.7 trillion (USD61.5 trillion), while new social financing added from January to October soared 14.4 percent year on year to CNY30.9 trillion (USD4.35 trillion).

Falling financing costs are a clear sign of a looser monetary environment, industry insiders said. The weighted average interest rate on newly issued corporate loans in October was 40 basis points lower than the same period last year at 3.1 percent. The average rate on new mortgages was also 3.1 percent, a drop of 8 basis points from a year earlier, keeping lending rates low.

Government bond issuance has been the main force behind the growth in social financing, analysts said. From January to October, the government issued about CNY22 trillion (USD3 trillion) in bonds, nearly 22 percent more than the same period last year. Corporate bond financing has also surpassed last year’s level.

The structure of social financing is also gradually changing. More than half of this year’s increase in social financing has come from other financing methods, excluding loans, an expert said. Therefore, focusing solely on bank lending as a financial indicator does not fully reflect how finance is supporting the real economy.

The credit structure continues to improve to support economic transformation and upgrading. By the end of October, inclusive loans to micro and small businesses soared 11.6 percent from a year ago to total CNY35.7 trillion (USD5 trillion). While medium- and long-term loans for the manufacturing sector jumped 7.9 percent to CNY14.9 trillion (USD2 trillion). Both outpace the overall loan growth rate of 6.5 percent.

The government sector’s leverage ratio jumped 8.8 percentage points as of Sept. 30 from a year earlier to 67.5 percent, according to leverage ratio data. The leverage ratio for non-financial companies climbed 4.5 percentage points, while that of the household sector dipped 1.2 percentage points. This reflects the government's approach of taking on more debt to help businesses stabilize their borrowing.

Money circulation has also picked up noticeably. The balance of narrow money, or M1, jumped 6.2 percent year on year to CNY112 trillion (USD15.7 trillion), rebounding 6.1 percentage points from this year’s low. The gap between M1 and M2 has narrowed to minus 2 percent, reflecting an increase in business activity and a recovery in consumer demand.

Editor: Kim Taylor