China's money supply rises by slowest on record and new loans fall by nearly half

Money supply in China last month rose by the slowest on record and new yuan loans nearly halved from September amid the government's tight regulations and seasonal liquidity stress.

Banks in China extended 663.2 billion yuan (US$99.91 billion) in new loans in October, up 11.9 billion yuan from October last year but the loans granted fell from September’s 1.27 trillion yuan, the People’s Bank of China said in a statement today.

The new loans also missed market expectations for 780 billion yuan according to a Reuters poll.

M2, the broader measure of money supply, rose 8.8 percent year on year, 0.4 percentage points slower than September and 2.8 percentage points slower than October last year.

Wang Yang, a researcher with the Development Research Center of the State Council, attributed the slower money supply to tightening financial regulations, and said monetary policies are expected to remain neutral in the near term.

“Deposits in financial institutions are weakening, resulting in higher costs of funding to the real economy,” said Wang. “Middle and long term lending to households and companies all cooled, but more policies may be implemented next year to support investment and infrastructure construction.”

Total social financing, the broadest measure of credit supply that includes loans, bank acceptance bills, corporate bonds and equity financing, rose 1.04 trillion yuan in October, a rise of 152.2 billion yuan from the same month last year and lower than 1.84 trillion yuan in September.

Analysts attributed the growth to robust bond and stock markets.

Central bank governor Zhou Xiaochuan warned in an article last week against risks such as real estate bubbles, higher leverage in the financial institutions, and excessive growth of mortgages.