REPEAT: MNI: China M2/Loans Mean Good Q3 GDP, Not Q4

Repeats Story Initially Transmitted at 07:01 GMT Oct 14/03:01 EST Oct 14

--Gov't Deleveraging, Bank Loan Quotas Could Restrict Q4 Financing

     BEIJING (MNI) - Chinese M2 money supply growth rebounded in September while

new bank loans and Total Social Financing (TSF) also grew above expectations,

according to data released by the People's Bank of China on Saturday,

reinforcing expectations that third quarter GDP growth will be quite strong. 

     However, the effects of the government's deleveraging campaign and the

lending limits imposed by annual bank loan quotas could well mean a growth

slowdown in the fourth quarter. 

     M2 rose 9.2% year-on-year to CNY165.57 trillion in September, rising from

the record low growth rate of 8.9% in August. The September growth rate was

higher than the MNI survey median expectation of 8.9%.

     "M2 growth rebounded slightly to 9.2%, escaping from the relatively low

growth rate below 9%," the China International Capital Corporation (CICC)

commented in an analysis Saturday. "One reason is the higher growth of new

loans, another reason is a slightly higher PBOC foreign exchange position after

the yuan appreciated."

     But M2 growth will be very likely to fall again in the future, CICC argued.

     "If credit expansion slows down in the fourth quarter because of loan

quotas, then the M2 growth rate is likely to drop," CICC continued. "Moreover,

the continued contraction of bank's interbank assets due to the financial

deleveraging campaign will lead to higher pressure on M2 growth in the future."

     Growth of Total Social Financing (TSF), the broadest measure of financing

in the economy, increased significantly to CNY1.82 trillion in September from

CNY1.48 trillion in August, and was also above the MNI survey median expectation

for a CNY1.565 trillion rise.

     Banks' new yuan loans to the real economy, the largest contributor to TSF,

totaled CNY1.19 trillion in September, according to MNI calculations.

     Shadow bank financing rose in September, contributing to the strong TSF

figure. Entrusted loans (up 77.5 billion), trust loans (up CNY240.9 billion) and

undiscounted bankers' acceptances (up CNY78.3 billion) posted their biggest

increases since March, according to MNI calculations.

     "The increase in trust loans likely consisted mainly of non-standard

funding for the real estate sector," CICC said. "As their funding channels --

including loans and bonds -- have been restricted, real estate companies have

had to use higher-cost funding methods like non-standard funding."

     Net corporate bond financing rose CNY166.8 billion in September, half again

higher than the rise of CNY106.3 billion in August.

     Total new loans increased CNY1.27 trillion in September, above the growth

of CNY1.09 trillion in August, and also higher than the MNI survey median

expectation for a CNY1.2 trillion gain.

     Medium- to long-term loans to the household sector, mainly mortgages, grew

CNY479 billion in September, a bit higher than the CNY447 billion increase in

August.

     "Medium- to long-term loans to the household sector again showed a strong

increase in September, in contrast to the [recent] downward trend in real estate

sales," Lian Xun Securities said in a note Saturday. "This is probably due to

the clamp down on mortgages, which has resulted in longer processing times

between the mortgage application and money actually being paid out. So the high

growth [in September] may reflect the condition of real estate sales in the

past."

     The strong financial figures back other data suggesting third quarter GDP

growth, which will be announced next Thursday, is very likely to be strong,

according to Huatai Securities. 

     The MNI survey median expectation is for third quarter GDP to rise 6.8%,

only slightly below the 6.9% growth rates posted in each of the first two

quarters this year. 

     But some analysts warned that the TSF figure might not accurately reflect

actual credit growth of China.

     "The financial data are generally quite strong, but we need to remain

calm," Lianxun Securities said. "Although [the increase] was partly driven by

credit demand from the real estate sector, we also need to remember that funding

channels not included in the TSF calculation, like asset management products,

have been strictly curbed this year, causing trust loans and bank loans to rise

faster than usual" as borrowers shift to those funding channels. 

     Some analysts warned a slowdown in loan growth in the fourth quarter could

drag on economic growth.

     "The quarter-end effect contributed significantly to the strong [September]

financial data. And as loan quotas restrict banks' loan growth in the fourth

quarter, the economy will likely be affected," CICC said on Saturday. "The

strong September data do not necessarily suggest that economic growth momentum

is strong."

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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com