China’s credit growth likely to have slowed in May

China’s credit growth is expected to have turned south in May after accelerating for one year. The policymakers are expected to hope for this as the central bank has been worried about credit risks. New yuan loans, in particular, are expected to have grown weakly, at about CNY 700 billion in May, as compared with an average rise of CNY 750 billion in May in 2011-2015, said Societe Generale in a research report.

In May, Chinese local governments’ debt-to-bond swaps decelerated to CNY 350 billion from April’s CNY 860 billion. This suggests actual new bank lending of about CNY 945 billion last month, added Societe Generale.

Therefore, bank lending growth is likely to have slightly decelerated from 18 percent y/y to 17.9 percent y/y. In the mean time, corporate bonds’ net issuance weakened last month. It declined further from CNY 210 billion in April and had averaged CNY 412 billion in the first quarter given weak sentiment in the credit market.

Since deleveraging is expected to carry on in other shadow banking channels, there is a likelihood that aggregate social financing has declined to CNY 650 billion last month, modestly pulling down total credit growth. Meanwhile, growth in money supply is also likely to have slowed partially because of negative base effects.