China' money growth likely weakened on base effects in June

China's total credit growth probably dipped further, partly due to a technical factor. New bank lending to come in at CNY880bn in June. However, that might not imply less new bank funding because of the debt-to-bond swap for local governments. 

"Mostly due to base effects, China's money growth to soften again in June. M2 growth likely dropped to 10.4% yoy", says Societe Generale.

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 to around 13% yoy. Meanwhile, the other channel of credit supply, corporate bonds and nonbank credit, is unlikely to have picked up. 

Equity financing should be the only bright spot, but that is not used in the calculation of total credit growth however.