Chinese monetary trends are stable and consistent with continued subdued economic expansion.
Real narrow money works best as a leading indicator for most economies followed here but in China’s case the broader M2 measure has performed equally well in recent years. Six-month real M2 expansion was stable in February and close to its average over the last two years – see first chart.
The six-month change in real narrow money M1 had turned negative in January but this was attributed here to Chinese New Year’s Day coinciding with the end-month reporting date. A rebound duly occurred in February , although real M1 expansion remains weak by historical standards.
Monetary trends , therefore , suggest continued sub-par growth but no increase recently in the risk of a “hard landing”.
On the credit side , six-month expansion of real bank loans has been stable over the past year but the broader “total social financing” measure has slowed as the authorities have clamped down on off-balance-sheet lending – second chart. The broader measure is still growing faster than bank loans , suggesting no early relaxation of credit restrictions despite low inflation.
Money market conditions , however , have eased since the New Year , with the one-month repo rate now close to its level at the same stage of the last three years* – third chart. This easing has been accompanied by some narrowing of spreads between interbank swap rates and government yields , although these remain elevated – fourth chart.
In other Chinese news , exports slumped in February but much of the weakness was probably due to New Year timing effects and a reduction in disguised capital inflows , the latter reflecting both an official crackdown on fake invoicing and (correct) expectations of a weaker exchange rate.
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