China’s total social financing plummeted to RMB273.1 billion in July from RMB1.97 trillion in June, much lower than the RMB1.5 trillion market expectations and is the lowest monthly reading since October 2008, according to data released by the People’s Bank of China.
New RMB loans were only RMB385.2bn in July, much lower than the market consensus of RMB780 billion, as well as the RMB700 billion new RMB loans recorded last July.
The total social financing number is smaller than the new RMB loan total in July. It is because new credit formation in other methods, including foreign currency deposit and trust loans, actually shrank.
The board M2 money supply increased 13.5% on a year-on-year basis.
"July’s monetary data suggest that Chinese commercial banks experienced a ‘sudden stop’ in credit extensions prompted by a significant increase in risk aversion," according to a report issed by ANZ.
The data means the financial system is engaged in a rapid de-leveraging process, which could lead to repercussions on the real economy. Such a sharp drop in credit is in fact a quantitative tightening, which will lead to higher interest rates, ANZ adds.