China Credit October : Lower than expectation, but Not Disappointed

In China, in October,

1) M2 growth accelerated to 13.5% y/y from 13.1%, outstripping PBOC’s target of 12%.

2) But, new loans halved to RMB 513.6bn from RMB 1.05tn in September, but it's because of seasonal effect mainly and were up 10.3% y/y.

3) And TSF slumped to RMB 476.7bn from RMB 1.3tn partly on the contraction of shadow banking.

Via BNP Paribas,

In October, both new loans and TSF were markedly below expectations, but M2 growth quickened to 13.5% y/y. We believe the disconnection was partly attributable to the fact that TSF now underestimates actual credit supply because local government bond issue is excluded from the tally. Current money and credit condition is accommodative for economic growth and interest rates have fallen materially. The reason that loose monetary policy has not shown effect to revive growth, in our view, is because fiscal policy is not expansionary enough. In economic downturns, government is needed to increase debt and leverage to provide cushions. And this is the cost the policymakers have to pay to stabilize growth in the short run.