DOWN IN THE detail of the monthly monetary aggregates for March released earlier this week is the curious point that the M2 measure of money supply slowed its growth even as new bank lending appeared to speed up.
M2 rose 11.6% year-on-year in March, down from February’s 12.5%. New bank lending in the first quarter, at 3.61 trillion yuan ($582 billion), was up 20% year-on-year.
With our usual caveats about reading too much into one month’s figures and making apples and oranges comparisons, it does seem that a large increase in lending hasn’t translated into economic activity in the real economy. Even allowing for the slowing of the economy, it looks as if intermediary credit is being rolled into the banking system — or to put it another way, out of shadow banking and into the (hopefully) cleansing light of the formal banking sector.
Given the warning contained in the IMF’s latest World Economic Outlook published earlier in the week that shadow banking was one of the main vulnerabilities of China’s economy —a warning repeated in the Fund’s Global Financial Stability Report, which said curtailing the riskiest parts of shadow banking should be China’s overall financial stability priority — and the central bank’s long standing concerns about the systemic risk that the $3.2 trillion sector poses to financial system, that is to be welcomed.