In April, China added 910.2 billion new social finance (expected to be 2.03 trillion) and 645.4 billion new RMB loans (expected to be 1.45 trillion), which were significantly lower than market expectations. M2 increased by 10.5% year-on-year, significantly higher than the market expectation (9.93%).
I. credit: the aggregate structure is weakened
In April, new RMB loans decreased significantly by 2.48 trillion month on month, a year-on-year decrease of 824.6 billion, a decrease of more than half (56.1%). The total credit structure has weakened, and the overall pattern of strong enterprises, weak residents, strong short-term loans and weak long-term loans has continued. This indicates that under the intensified impact of the epidemic and the “triple pressure”, residents’ work and travel are limited, and the demand for enterprise operation and investment financing is further reduced.
First, the financing needs of enterprises are still dominated by short-term loans. New corporate loans decreased by 176.8 billion year-on-year, down 1.9 trillion month on month. On the one hand, medium and long-term loans of enterprises increased by 265.2 billion, with a year-on-year increase of 395.3 billion this month after a slight correction in March. On the other hand, the performance of short-term financing (short-term loans and on balance sheet bills) of enterprises was significantly better than that of medium and long-term loans, with an increase of 263.6 billion year-on-year. Among them, short-term loans decreased by 194 billion in the current month and 19.9 billion year-on-year; On balance sheet bill financing increased by 514.8 billion in the current month, an increase of 243.7 billion year-on-year. At the end of April, the bill discount rate fell sharply again, pointing to the lack of effective demand of the real economy.
Second, resident credit continued to be weak. New residential loans turned negative again, down 217 billion. A year-on-year decrease of 745.3 billion, which has been negative growth for six consecutive months, but the decline has increased significantly. This month, the central bank did not announce the specific scale of residents’ short-term loans and medium and long-term loans, but released the data of consumer loans and housing loans. Affected by the epidemic, residents’ consumption scenarios and willingness were limited, and consumer loans decreased by 104.4 billion (a year-on-year decrease of 186.1 billion). Housing loans decreased by 60.5 billion, a year-on-year decrease of 402.2 billion, a further increase from the previous month (250.4 billion), reflecting the additional pressure of the epidemic on real estate sales.
II. Social Finance: mainly dragged down by credit
In April, social finance increased by 910.2 billion, and the growth rate decreased by 0.4pct to 10.2%. The newly added social finance decreased by 3.74 trillion month on month, with a year-on-year decrease of 946.8 billion. In terms of contribution, 97.4% of the year-on-year decline in social finance came from credit, and other projects remained basically stable year-on-year.
First, non-standard financing is basically stable. Non standard financing decreased by 317.4 billion in the month, down 330.9 billion month on month, with a slight increase of 51.9 billion year-on-year. Among them, undiscounted bank acceptance bills decreased by 255.7 billion, an increase of 40.5 billion year-on-year; Trust loans – 61.5 billion, a year-on-year decrease of 71.3 billion; Entrusted loans were basically flat (minus 200 million), with a year-on-year decrease of 21.1 billion. The year-on-year decline of trust and entrusted loans converged, and the pressure drop pointing to non-standard continued to ease.
Second, the rhythm of corporate bond financing remained stable. In April, the direct financing of enterprises increased by 464.5 billion, a year-on-year increase of 20.7 billion, a slight increase over the previous month. Corporate bond financing increased by 347.9 billion (including 142.9 billion in urban investment), a decrease of 14.5 billion year-on-year under the high base of last year; Corporate equity financing increased by 116.6 billion, a year-on-year increase of 35.2 billion.
Third, the pace of government financing has slowed down compared with last month. In April, the financing of new government bonds decreased by 316.2 billion yuan to 391.2 billion yuan month on month, basically unchanged year-on-year (an increase of 17.3 billion yuan). The main reason for the decline in the issuance of RMB 314.9 billion of special bonds by the local government may be related to the fact that the issuance of RMB 314.7 billion of special bonds by the Bank of Qingdao is close to RMB 31.4 billion in advance. With the issuance of the new special bond amount, it will rebound in May.
III. money: broad liquidity gap turns negative
In April, the year-on-year growth rate of M2 increased significantly by 0.8pct to 10.5% month on month, mainly driven by the base effect, the acceleration of fiscal expenditure and the interest payment of the central bank. In the month when the fiscal deposits were handed over at the beginning of the traditional quarter, they only increased slightly by 41 billion, a year-on-year decrease of 536.7 billion, pointing to the increase of fiscal countercyclical regulation in response to the impact of the epidemic; Corporate deposits decreased by 121 billion, an increase of 234.6 billion year-on-year; Residents’ deposits decreased by 703.2 billion, a year-on-year increase of 866.8 billion, pointing to a significant weakening of residents’ willingness to spend. The year-on-year growth rate of M1 increased by 0.4pct to 5.1%, which may be related to policy support such as tax rebate and tax deferment. The m2-m1 growth scissors difference increased by 0.4pct to 5.4% month on month, pointing to a decline in economic vitality. At the same time, the growth scissors of social finance-m2 fell sharply by 1.2pct to – 0.3% month on month, the first time in six years, pointing to increased pressure on bank assets.
IV. impact of bond market: narrow fluctuation of yield
After the release of social finance data in April, the market reaction was flat, the fluctuation of bond yield did not exceed 1bp, and the active bonds of 10-year Treasury bonds still fluctuated in a narrow range between 2.81% and 2.82%. In fact, the recent bond market, especially the long-term yield, has not fluctuated much, and the market is still in the contradiction between loose capital and stable growth.
On the one hand, the yield has declined substantially recently. Due to the weakening financing demand, the overall interest rate center has decreased from April to May. Coupled with the overall easing of inter-bank liquidity, the overnight and seven-day interest rate center of the money market has dropped to 1.4% and 1.7% respectively in April, driving the yield of short-end bonds to gradually decline, and the yield curve has steeped. At present, the yield of one-year policy financial bonds is 18 bp lower than that at the end of March and 3-7 BP lower than that of three-10 years.
On the other hand, the market’s expectation of subsequent monetary policy has changed. In terms of practical operation, the central bank did not cut interest rates in April, and implemented a number of structural monetary policy tools. In the first quarter monetary policy implementation report of the central bank, statements such as “focus on supporting small and micro enterprises and difficult industries and vulnerable groups affected by the epidemic”, “beware of imported inflationary pressure caused by the rise of international commodity prices” and “pay close attention to the change of price trend” were also added. Market interpretation in the future, the central bank will pay more attention to structural tools and focus on key industries, and the expectation of reducing policy interest rates will be cooled.
V. foresight: innovative tools for “steady growth”
Overall, the total credit structure fell in April, indicating that the financing demand and expectation of the real economy were further weakened under the impact of the epidemic. Looking forward, in the future, the central bank is expected to actively use innovative monetary policy tools to further release the dividends of market-oriented interest rate reform, reduce the comprehensive financing cost of the real economy, and support key areas and weak links in the economy through structural refinancing.
