MNI DATA ANALYSIS: Funding Pressures Weigh On China M1 Growth

     BEIJING (MNI) - China's lower M1 growth in recent months suggests financing

pressures for companies, imposing downward pressure on future economic growth.

     Since February, China's M1 growth, including M0 and companies' demand

deposits, has been lower than M2 growth, giving concern over growth prospects

for the economy. Some analysts view the lower M1 growth compared with M2 growth

as a bad sign for growth prospects, as it suggests companies have less intention

to invest, thus keeping less money in their checking account.

     However, breaking down the M2 growth data shows little evidence of

corporates' investment intentions fading, but a decline in the funding companies

received.

                            Increasing

                            Amount (In                         Increasing Amount

                             Billions)                             (In Billions)

--------------------------------------------------------------------------------

                                                PBOC's Forex

M0:                             -316.0   Purchasing Position                19.3

Corporate Demand

Deposits:                      -1464.0       Bond Financing:                41.0

                                                    Loans to

Corporate Time                                 Non-Financing

Deposits:                        717.9          Enterprises:              1794.7

Personal Deposits:              2076.2  Loans to Households:              1385.9

Non-bank Financial

Institutions

Deposits:                         86.1       Loans to NBFIs:               -54.5

Money Market Fund:               586.7      Fiscal Spending:               471.1

                                                     Others:             -1970.6

Total:                          1686.9                Total:              1686.9

     The table above shows corporates demand deposits fell significantly from

the end of January to April, down by CNY1.46 trillion. Over the same period,

corporate time deposit only increased CNY717.9 billion. Meanwhile, personal

deposit grew sharply, up CNY2.08 trillion during the Feb-Apr period, far

exceeding companies' deposit growth.

     Even if assuming all money market funds (MMF) are purchased by companies,

total deposits, including MMF, during Feb-Apr period shrunk CNY159.4 billion.

This does not reflect companies' investment intentions falling, but rather weak

credit availability.

     Loans to companies increased CNY1.79 billion during February to April.

However, considering all credit generated through other channels, including

non-standard assets and more, are also mostly to companies, corporate funding

was less than new loans to companies suggested.

                            Increasing

                            Amount (In                         Increasing Amount

                             Billions)                             (In Billions)

--------------------------------------------------------------------------------

                                                PBOC's Forex

M0:                              508.7   Purchasing Position             -2911.2

Corporate Demand

Deposits:                       8051.7       Bond Financing:              -830.6

                                                    Loans to

Corporate Time                                 Non-Financing

Deposits:                       1974.9          Enterprises:              5768.3

Personal Deposits:              5143.1  Loans to Households:              6220.2

Non-bank Financial

Institutions

Deposits:                        100.5       Loans to NBFIs:               334.4

                                            Fiscal Spending:               213.4

                                                     Others:              6984.3

Total:                         15778.9                Total:             15778.9

     Credit directed to companies rose quickly in 2016, with loans to companies

and credit generated through other channels up CNY5.77 trillion and CNY6.98

trillion in 2016, together making up more than 75% of total M2 growth. The rapid

increase of credit directed at companies pushed M1 higher, with corporate

deposits in checking accounts up CNY8.05 trillion in 2016.

     Lower M1 growth reflects tightening credit for the corporate sector from

the financial deleveraging campaign, which could lead to increased downward

pressure on economy later in the year.

     Lower growth of M1 this year could also reflect weaker property sales.

     Personal deposits grew CNY2.07 trillion during the three months through

April, much higher by CNY1.39 trillion than the rise of loans issued. However,

in 2016, personal deposit increased CNY5.14 trillion over the whole year, far

lower than the CNY6.22 trillion of loans issued. This can be explained to some

extent by slowing property sales. 

     The decline in M1 reflects growing pressure on property sales. If M1 shows

no sign of a rebound, indicating property sales are also under pressures.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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