Chinese PBoC shifts stance in July, leans on lenders

China's central bank shifted its stance last month, leaning on the country's lenders to increase their loan volumes as Beijing seeks to offset weaker growth and the impact from frictions with its largest trading partners.

According to the People's Bank of China, the rate of growth in the country's money supply, as measured by the M2 monetary aggregate, picked-up from 8.0% year-on-year for June to 8.5% in July, easily outpacing forecasts for an unchanged reading of 8.0%.

That, said Freya Beamish at Pantheon Macroeconomics, confirmed that the authorities had been leaning on banks to lend more; hence the increase in M2 growth.

The rate of increase in new yuan loans on the other hand slipped, although Beamish said the decline was entirely due to seasonal effects and in any case less than the consensus had expected.

New yuan loans slowed from 1.84bn in June to 1.45bn for July (consensus: 1.275bn).

Nonetheless, a broader measure of lending trends, aggregate financing, retreated from 1.18bn yuant o 1.04bn yuan (consensus: 1.1bn yuan), suggesting that Beijing was continuing to clamp-down on so-called 'shadow financing'.

It also suggested that monetary conditions did not loosen by quite as much as the headline readings suggested.

So too, the rate of growth in M1, a broader measure of money supply, slowed sharply last month, reaching a year-on-year clip of 5.1%, down from from 6.6% for June, due to base effects.

"Although M1 growth has been recovering strongly at the margin," Beamish said.

"These data broadly point to a continued slowdown in GDP growth in year-over-year terms, well into next year, though quarterly growth should begin to pick up in summer. The authorities likely will continue to take an easier approach in coming months, but GDP growth will slow nonetheless."