China August money and credit conditions Report Interpretation

Overview

This China macro data update examines why August money and credit indicators undershot expectations. Goldman Sachs attributes the weakness primarily to slower bank loan extension and a decline in government bond issuance, while the loan breakdown points to continued softness in both household and corporate demand.

Core views

August money and credit data fell short of market expectations. New RMB loans were RMB 60bn, including RMB 55bn of loans to the real economy, versus Goldman Sachs’ RMB 300bn forecast and Bloomberg consensus of RMB 404bn. Total social financing (TSF) was RMB 1,660bn, below Goldman Sachs’ RMB 2,000bn forecast and the RMB 2,122bn consensus. The report attributes the weaker-than-expected credit extension chiefly to slower bank lending and government bond issuance. After seasonal adjustment, TSF flows declined from July to August because government bond net issuance dropped to RMB 635bn from RMB 1,450bn and loan extension fell to RMB 730bn from RMB 995bn. This weaker flow translated into slower TSF stock growth: 7.2% year on year in August versus 7.4% in July. The implied seasonally adjusted annualized month-on-month growth rate of TSF stock also fell to 4.8% from 8.5%. Bank lending data indicate weak demand across households and corporates. Outstanding RMB loan growth slowed to 4.9% year on year in August from 5.1% in July; Goldman Sachs estimates its seasonally adjusted annualized month-on-month pace at 3.6%, versus 4.3% in July. Household loans declined RMB 203bn in August, compared with a RMB 30bn increase a year earlier. Corporate loans increased RMB 260bn, but this was well below the RMB 590bn extension a year earlier. Money-supply data showed a modest divergence. M1 growth edged up to 4.1% year on year in August from 4.0% in July, whereas M2 growth moderated to 7.5% from 7.7%, in line with Goldman Sachs’ forecast but slightly below the 7.6% consensus. The report links the M2 slowdown mainly to slower growth in deposits held by non-bank financial institutions. Fiscal deposits rose RMB 110bn in August, around RMB 80bn less than a year earlier, which Goldman Sachs says suggests slightly faster fiscal spending.

Analysis framework

Goldman Sachs compares reported August credit and money-supply data with its own forecasts, market consensus, July readings and year-earlier figures. It then decomposes TSF into government bond issuance and loan extension, examines household and corporate loan flows, and uses deposit-category changes and fiscal deposits to interpret M1 and M2 movements.

Methodology notes

• Macroeconomics

  Seasonally adjusted annualized month-on-month growth comparisons

  The report estimates seasonally adjusted annualized monthly growth for loan and TSF stocks to compare underlying momentum between July and August, rather than relying only on year-on-year changes.

• Industry AnalysisSupply-demand framework

  Loan-demand breakdown by households and corporates

  The report uses household and corporate loan flows as evidence of credit demand conditions and concludes that demand remained weak in both sectors.

Key data

• New RMB loansRMB 60bn in AugustRMB 55bn to the real economy; versus Goldman Sachs forecast of RMB 300bn and Bloomberg consensus of RMB 404bn.
• TSF flowRMB 1,660bn in AugustVersus Goldman Sachs forecast of RMB 2,000bn and Bloomberg consensus of RMB 2,122bn.
• Government bond net issuanceRMB 635bn in AugustSeasonally adjusted; down from RMB 1,450bn in July.
• Loan extensionRMB 730bn in AugustSeasonally adjusted; down from RMB 995bn in July.
• TSF stock growth7.2% year on year in AugustDown from 7.4% in July; implied seasonally adjusted annualized month-on-month growth was 4.8% versus 8.5%.
• Outstanding RMB loan growth4.9% year on year in AugustDown from 5.1% in July; Goldman Sachs estimates 3.6% seasonally adjusted annualized month-on-month growth versus 4.3% in July.
• Household loansRMB -203bn in AugustCompared with a RMB 30bn increase a year earlier.
• Corporate loansRMB 260bn in AugustCompared with a RMB 590bn extension a year earlier.
• M1 and M2 growthM1 4.1% year on year; M2 7.5% year on year in AugustM1 rose from 4.0% in July, while M2 slowed from 7.7%.

Impact & implications

The report’s interpretation is that August’s credit slowdown reflected both weaker public-sector financing through government bonds and subdued private-sector borrowing demand. The M2 deceleration was principally associated with slower growth in non-bank financial institution deposits, while the smaller rise in fiscal deposits suggests slightly faster fiscal spending.