(Bloomberg) -- China’s credit growth hit a fresh record low in June, highlighting subdued borrowing demand and prompting a central bank-backed publication to downplay concerns about weakness in the economy.
The stock of aggregate financing — a broad measure of credit — expanded 8.1% from a year ago, the slowest on record in data going back to 2017, official figures released on Friday show. The net increase in aggregate financing was 3.3 trillion yuan ($455 billion), according to Bloomberg calculations based on the data, below the 3.4 trillion yuan forecast in a Bloomberg survey.
Loan growth also hit a record low. The stock of outstanding bank loans climbed 8.3% from a year ago, the slowest pace in data going back to 2003.
While June is traditionally a strong month for borrowing as banks tend to extend more credit at the end of each quarter to meet lending targets, a prolonged real estate slump has curbed demand for credit among consumers and businesses. Local governments have also been forced to cut back on their off-balance sheet borrowing as Beijing seeks new ways to drive economic growth that won’t rely so much on expanding credit.
The data is “disappointing” and points to weak credit demand, said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd.
Aggregate financing in the first six months of the year was 18.1 trillion yuan, down from 22 trillion yuan in the same period last year.
Government bonds are accounting for an increasing share in the overall credit mix as central and local authorities seek to raise funds for investments that will boost demand. Authorities issued 849 billion yuan in new bonds in June, down from 1.2 trillion yuan the previous month.
M1 money supply, which covers cash and deposits used for immediate transactions, contracted 5% as of the end of June, the worst reading on record since data started in 1996. M2 supply, which includes more savings deposits, expanded 6.2%, also a new low.
China’s economic outlook continues to show a mixed picture. While exports have been very strong — with data on Friday showing a surge to the highest level in almost two years — factory activity shrank for a second straight month in June, and consumer prices cooled, spurring calls for more policy support.
The People’s Bank of China last month hinted at reforming its interest rate policy as it seeks to bolster economic growth while keeping the yuan stable. The central bank this week announced additional open market operations and tightened the band within which short-term rates can fluctuate.
Shortly after the data, the PBOC-backed Financial News published a commentary saying the slowdown in credit and money supply growth does not mean the economy is weakening. It called for markets to focus less on these indicators, and pay more attention to interest rate adjustments instead.
--With assistance from James Mayger.
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