China: April monetary data preview – ING

Tim Condon, Chief Economist at ING, suggests that they consider the 13% official target for China’s 2016 M2 growth prudent.

Key Quotes

“April money and credit data are due sometime from today to Sunday. The Bloomberg analyst consensus forecast for aggregate financing is CNY1,300bn, which would be a significant decline from CNY2336bn in March. The flow of aggregate financing grew 42% YoY in the first quarter, which accelerated the growth of the stock to 13.4% from 12.3% in 2015.

The prominent trend is the winding down of the shadow banking system, comprised of entrusted loans, trust loans and banker’s acceptances (see figure). The stock of shadow banking credit grew 3.2% in March (the flow contracted 74% YoY YTD).

Banks and the capital market have replaced the shadow banks. Capital market (nonfinancial corporate equity issuance and corporate bond issuance) credit growth was 28.4% in March (the flow increased 176% YoY YTD). Bond market stress is in the headlines worldwide and has attracted regulatory scrutiny, most recently from SASAC. It probed bonds issued by 106 central SOEs and concluded that debt risk was “controllable.” It also vowed to improve oversight and require SOEs to improve their capital structures. The insurance regulator, the securities regulator and the banking regulator have announced or concluded similar probes.

The target for M2 growth this year is 13.0%, up from 12.0% in 2015 (13.3% realized). M2 growth was 13.4% in March. We consider the target growth prudent.”