Goldman Sachs On China's Weak July Credit Figures

The US bank weighs in on the weak July China credit figures. The data is expected to support further PBoC easing to facilitate greater government bond issuance.

Goldman Sachs: "July's money and credit data came in below expectations except for M2 growth. The new RMB loans under total social financing (TSF) turned negative in July, the first time since July 2005. The composition of RMB loan data indicated credit demand remained weak in July: new household loans turned negative in July, and new corporate loans remained positive primarily due to a surge in bill financing. M1 growth slowed further in July, while M2 growth edged up. The Financial News (金融时报), a media outlet affiliated with the PBOC, reported that the sluggish money supply growth was driven by a combination of weak credit demand, crackdown on fake loans for financial arbitrage, and continued deposit outflows to wealth management products. As the PBOC highlighted the importance of counter-cyclical adjustment to support domestic demand, we maintain our forecast for a 25bp RRR cut in Q3 to facilitate increased government bond issuance, and a 10bp policy rate cut in Q4 to lower funding costs for the real economy"