China M2 Hits Another Low In July While Corp Bonds Rebound

     BEIJING (MNI) - China's M2 money supply growth in July hit another historic

low, while corporate bond financing rebounded strongly, according to central

bank statistics released Tuesday.

     M2 rose 9.2% year-on-year to CNY162.9 trillion, compared with the previous

record-low growth of 9.4% in June, reflecting "a strengthening of financial

regulation, shortening of funding chains and a decrease in complicated

structured products involving the use of multiple channels," as the People's

Bank of China said in its second-quarter monetary policy report published

Friday.

     "There is no need to worry about the low M2 growth, and the effectiveness

of M2 in reflecting economic conditions has weakened," Li Huiyong, the chief

analyst at Shenwan Hongyuan Securities, said on Tuesday. "Due to the effects of

regulation, the money-creating mechanism has been limited, and high growth of M2

is not likely to re-appear."

     China's total social financing (TSF) decreased significantly to CNY1.22

trillion in July, compared with an increase of CNY1.7762 trillion in June

(revised down from CNY1.78 trillion), but it was still above the expected MNI

survey median of CNY1.08 trillion.

     Yuan loans to the real economy, the largest contributor to TSF, totaled

CNY915.2 billion in July, a jump of CNY460.2 billion from the same period last

year. 

     The net financing of corporate bonds increased significantly in July to

CNY284 billion -- the highest since November 2016 -- from a contraction of

CNY16.9 billion in June.

     The rebound of corporate bond financing "reflects that liquidity conditions

and market sentiment have improved in July," Li said. "Note that if we take the

net financing of local government bonds into account, which totaled CNY753.7

billion in July, total social financing became even stronger."

     Shadow bank financing weakened in July, in line with the government's

deleveraging campaign. The sum of shadow banking, which comprises entrusted

loans, trust loans and undiscounted bankers' acceptances, contracted CNY64.4

billion, compared with an increase of CNY224.4 billion in June. Trust loans and

undiscounted banker's acceptances alone contracted CNY124.9 billion and CNY183.4

billion, respectively.

     New loans increased CNY825.5 billion in July, lower than the CNY1.54

trillion growth in June but still above the median MNI survey expectation of

CNY800 billion.

     Medium- to long-term loans for the household sector, mainly comprising

mortgages, grew CNY454.4 billion in July, lower than the CNY483.3 billion gain

in June but still better than analysts expected.

     "The medium- to long-term household loans sector is stronger than expected,

which is not quite in line with the weak housing sales this month," Chen Long,

China economist at Gavekal Dragonomics, told MNI. "This is probably because

mortgages are one to three months behind sales, so the weak housing sales in

July might show their influence later this year."

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

[TOPICS: MAQDS$,M$A$$$,M$Q$$$,MT$$$$]