Credit growth within solid range, PBOC says

Chinese 100 yuan banknotes are seen on a counter of a branch of a commercial bank in Beijing, March 30, 2016. [Photo/Agencies]

Credit growth maintained within a reasonable range in July despite fluctuations, the central bank said on Monday.

Data released on Friday shows that banks in China issued 463.6 billion yuan ($69.78 billion) of new loans in July. Most new lending went to medium-to-long home mortgages, while corporate lending declined by 2.6 billion yuan.

The sharp decline of corporate lending has led to some concerns over the outlook for the world’s second largest economy.

The central bank pointed to seasonal factors as the reason behind, adding that it is normal to see a decline in corporate lending at the time when the nation is pressing ahead with supply side reform.

One-month data does not justify over-interpretation, the central bank said in the statement.

In the meantime, July M2 grew 10.2 percent year-on-year, which is 1.6 percentage points lower than the previous month, while M1 surged to 25.4 percent, leading to the widest?gap of the two key gauges for money supply since 2010.

The central bank said the widened divergence between M1 and M2 in July reflected liquidity distribution across sectors, but it does not mean that China has fallen into a liquidity trap - a situation where money pumped into the market fails to enter into the real economy.

M1 is the narrow measure of money supply, which includes cash and demand deposits, while M2, a broader measure, includes cash and all types of deposits.

Base effect explains why M1 surged at fast speed— the indicator witnessed rather slow growth in the last two years, and increased cash held by enterprises in recent months has led to a sharp jump, it added.

The central bank said that M2 growth year-on-year would pick up in August and September as distortion of base effect declines.

The central bank pledged to?keep prudent monetary policy in order to create an appropriate policy environment for supply side reform and stabilizing growth.