Chinese M2 money supply growth decelerates in August, deleveraging in shadow banking sector to continue

Chinese M2 money supply growth slowed in the month of August. On a year-on-year basis, M2 money supply growth decelerated to 8.2 percent, possibly reflecting a rise in bond issuance by local governments in the month, noted ANZ in a research report.

A fall in deposits from non-bank financial institutions mainly led to the deceleration in M2 money supply growth. Since the net supply of new general and project-based local government bonds has risen recently since non-bank FIs might have shifted their banks’ deposits to bond purchases.

For the first time since May 2018, the total social financing figure has outpaced new yuan loans, driven by a rise in corporate bonds, which reached CNY 337.6 billion in August, compared with CNY 223.7 billion in July and CNY 141.3 billion in June. It appears that the Chinese central bank actions to stabilize bond market confidence have been effective.

In the meantime, China’s shadow banking sector continues to contract. Trust loans, entrust loans, and undiscounted bankers’ acceptance drafts saw contractions of CNY 68.8 billion, CNY120.7 billion, and CNY 77.9 billion, respectively.

“We believe that the deleveraging in the shadow banking sector will continue in the coming months, which in turn will weigh on M1 growth”, added ANZ.

At 11:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was neutral at -7.92255, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 101.003. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex