Chinese credit continues to grow steadily, investment growth continued to weaken slightly

China’s monetary growth indicates just a moderate deceleration although the authorities have tightened liquidity conditions and market interest rates have continued on a rising trend. Therefore, credit stock continues to rise at a much more rapid rate than nominal GDP growth suggesting increasing debt levels, noted Nordea Bank.

The sluggish response to the tightening policies set by authorities is partially because of a fact that rapid growth in bank credit has compensated for weaker developments in the bond markets. Authorities, who have kept the reference rates on bank loans unchanged, have encouraged this. This has made bank loans more attempting while rising market rates have lowered the volume of corporate bond issuance. Moreover, growth in government bond issuances has decelerated. Bank credit in May rose by CNY 1,100 billion and in January-May by more than CNY 6,400 billion.

The real economic developments monthly data also continued to indicate strong growth in May. On top of the positive foreign trade data seen last week, the fresh data on retail sales and industrial output did not give any signs of a sudden deceleration. Investment growth continued to be a bit weak.