April credit print is bad, but not that bad

Net new total social financing (TSF) fell in April, for the first time on record (PBoC).

• TSF fell RMB 199 billion last month, compared to growth of RMB 4.9 trillion in March.
• The outstanding value of TSF was up 8.3% y/y, down from 8.7% growth in March.

The monthly drop was driven by:

1. A fall in government bond issuance – the balance of government bonds fell RMB 98 billion in April.
2. Less household borrowing – which fell around RMB 500 billion.
3. A drop in shadow bank financing.

M2 money supply expanded by a measly 7.2% y/y, compared to 8.3% growth in March.

Get smart: This weak credit print is not necessarily an indication of a weak economy.

First, the drop in government bond issuance is an accounting anomaly.

• Beijing issued RMB 1 trillion of treasury bonds (STBs) in late 2023, to be deployed in early 2024.
• This means bond issuance in the first four months of this year has been notably slow, without impacting economic activity – as the previously issued bonds are now being deployed.

Second, household savings fell faster than the drop in household borrowing.

• Household savings fell by a whooping RMB 1.85 trillion in April.
• This suggests households are finally starting to spend down their excess savings, which could be an early positive sign for household consumption going forward.

Finally, the drop in shadow bank financing is consistent with the government’s aim to reduce local government hidden debt.

The bottom line: Despite the headlines, one bad credit print doesn’t mean that China’s economy is suddenly heading south again.