China’s robust credit growth likely gained from front-load funding, says ANZ

China’s credit growth expanded strongly in April. The sharp rise in April’s new yuan loans was mainly due to strong growth of medium-and long-term corporate loans and household loans, noted ANZ in a research report. Medium-and long-term corporate loans grew CNY 522.6 billion, or 47.5 percent of total new loans, in April. This is the fastest for the April month in the last ten years.

For the initial four months of 2017, this loan category grew CNY 3.2 trillion as compared CNY 2.03 trillion over the same period last year. Household loans also rose in the month, rising CNY 571 billion, higher than CNY 421.7 billion in April 2016. The strong loan growth also rose aggregate financing in April, which rose CNY 1,390 billion.

The credit expansion of April might have been because of front-load funding demand before regulatory tightening, and the risk skews to the downside in the months ahead. Those in the business sector are expected to have brought forward their funding requests when China’s authorities recently bolstered their attempts on financial tightening in the shadow banking sector, stated ANZ. The total rise in trust loans, entrusted loans and bankers’ acceptance bills contracted to CNY 177.5 billion in April from CNY 754 billion in the prior month.

The gap between M1 and M2 money supply stayed wide, implying that there continues to be room for deleveraging in the shadow banking sector. The continuously strong M1 growth shows corporates’ solid preference towards financial product investment in the midst of low deposit rates.