China made progress in curbing shadow banking last month and slowed money-supply growth, as Chinese Premier Li Keqiang (李克強) seeks to rein in the credit boom that poses risks for the nation’s financial system.
Data for aggregate financing, the broadest measure of credit, showed new yuan loans played the biggest role since September 2011, with non-traditional sources of finance less prominent. M2 money supply rose 14 percent, down from 15.8 percent the previous month, People’s Bank of China (PBOC) numbers showed in Beijing on Friday.
A central bank-engineered cash crunch last month helped squeeze speculative lending and rein in what Chinese Vice Finance Minister Zhu Guangyao (朱光耀) last week termed “prominent” shadow-banking risks. The danger for the government is that efforts to protect the financial system only worsen the nation’s slowdown after exports unexpectedly fell and manufacturing contracted.
“The impact of the PBOC’s liquidity crunch operation is very clear: targeting shadow banking, but maintaining regular bank lending,” said Shen Jianguang (沈建光), chief Asia economist at Mizuho Securities Asia Ltd in Hong Kong. The surge in the share of bank loans in aggregate financing reflects “a severe decline in shadow-banking activities,” he said.
Growth in the world’s second-largest economy probably eased to 7.5 percent from a year earlier in the second quarter, according to the median estimate in a Bloomberg survey of 45 analysts before data due tomorrow. That is down from 7.7 percent in the first three months of the year.
Li has indicated he will not boost credit to support the economy even as the pace of expansion slows, with the State Council pledging last week to improve the effectiveness of financial support while maintaining its “prudent” monetary policy stance.
The PBOC released credit data after the stock market closed. The benchmark Shanghai Composite Index fell 1.6 percent on Friday, paring the gauge’s biggest weekly gain in two months, on concern the government’s tolerance for slower growth will hurt earnings.
Li said last week that the government should keep restructuring the economy as long as growth, employment and inflation stay within limits he did not specify.
Aggregate financing, the PBOC’s broadest measure of credit that includes bond sales, entrusted loans and bankers’ acceptance bills was 1.04 trillion yuan (US$170 billion) last month, Friday’s data show. That was down from 1.19 trillion yuan in May and 1.78 trillion yuan a year earlier.
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