China money growth likely weakened on base effects

China's money growth to soften again in June, mostly due to base effects. M2 growth likely dropped to 10.4% yoy from 10.8% yoy in May. Last June, M2 growth jumped to 14.7% yoy from 13.5% yoy on an outsized increase in deposits, which is unlikely to repeat given the relaxation of the loan-to-deposit ratio requirement.

Total credit growth probably dipped further, partly due to a technical factor. New bank lending is expected to come in at CNY880bn in June, compared with CNY900bn in May. However,that might not imply less new bank funding because of the debt-to-bond swap for local governments. The swap programme converted CNY135bn in outstanding bank loans, which are in the total social financing data (TSF), into local government bonds - which are not in the TSF. 

Together with a strong base, the growth of loan stock probably dropped notably from 13.6% yoy to around 13% yoy. Meanwhile, the other channel of credit supply, corporate bonds and nonbank credit, is unlikely to have picked up. The only bright spot should be equity financing, but that is not used in the calculation of total credit growth however.