Steady financial sector support buoys real economy

Though new bank loans and money supply growth moderated in China during April, the country's real economy saw stable development thanks to strong support from the financial sector, experts said.

The broad measure of money supply that covers cash in circulation and all deposits, or M2, increased 8.1 percent on a yearly basis to 226.21 trillion yuan ($35 trillion) at the end of April, according to data released by the People's Bank of China, the central bank, on Wednesday.

The M2 growth rate was 1.3 percentage points lower than that at the end of March, and down 3 percentage points from the same period a year ago.

China's new yuan-denominated loans stood at 1.47 trillion yuan in April, down 229.3 billion yuan from a year earlier, the PBOC said.

To tackle the COVID-19 challenges last year, the monetary authorities increased credit to support the production of key materials necessary to prevent the pandemic and ensured support for small businesses, all of which resulted in a high base for the figures in April, experts said.

By the end of April, total social financing, a measure of funds the real economy receives from the financial system, reached 296.16 trillion yuan, up 11.7 percent on a yearly basis. The country's newly added social financing came in at 1.85 trillion yuan in April, down 1.25 trillion yuan, the PBOC said.

In terms of breakdown, yuan-denominated loans to the real economy increased by 1.28 trillion yuan, down by 339.9 billion yuan from a year ago, according to the PBOC.

Wang Yiming, a member of the PBOC's monetary policy committee, said that although the M2 and total social financing have dropped from high levels seen a year ago, on average, the figures maintained a reasonable level, which indicates the continuity, stability and sustainability of the monetary policy.

The PBOC is unlikely to tighten policies, said Lu Ting, chief economist in China with Nomura Securities, because policy tightening may constrain real demand and potentially undermine the growth recovery.

"Instead of tightening, the PBOC is more likely to make some necessary upward adjustments to the credit growth targets so that it can match nominal GDP growth," said Lu.

Although credit growth has slowed, the lending structure has improved. According to the PBOC data, in April, the medium- and long-term loans rose by 660.5 billion yuan, up by 105.8 billion yuan compared with the same period a year ago, marking the 14th consecutive month of increases.

The optimized lending structure suggests that companies' expectations have improved, with stronger investment willingness, and it will support an investment rebound in the coming months, said Wang.

Most of the financial figures are in line with the current economic recovery situation, and the monetary policy may be weighted to prevent risks and structurally support the rebound in real economy development, said Wang.

The PBOC is expected to maintain liquidity at reasonable levels and guide market rates to float around the policy rates. Policies will encourage financial institutions to increase support for technology innovation, small and micro enterprises and green development, said Wang.