Increase in new loans to back up economic growth recovery in China

Relaxation in credit quotas a likely factor.

New loans in China are forecast to jump to CNY1050bn in June, from CNY870bn in May (June 2013: CNY860bn).

According to a research note from Barclays, this is on the back of the PBoC’s expanded relending to the agriculture sector and small enterprises; targeted RRR cuts; and, likely, some relaxation in credit quotas.

China’s big 4 banks even reported a net increase in loans to CNY290bn in June, and that of new deposits to CNY2.2trn on the back of fiscal deposits, Barclays said.

The increase in loans is expected to contribute to economic recovery, as Barclays forecasted that Q2 GDP growth is at 7.4% y/y, implying a rise in sequential growth to 7.4% saar from 5.8% in Q1.

The other forecasts of Barclays are: flat CPI inflation at 2.5% y/y in June; slowdown in food price inflation on lower pork and fruit prices, despite recovery in y/y vegetable prices; 3.3% drop in weekly pork prices in June, after a 3.0% drop in May; a 1.8 percent fuel hike.

12% increase in y/y export growth in June, from 7% in May; 7.5 percent import growth in June, on back of recovering domestic demand and higher import prices; 8.9% growth in IP in June; lower FAI at 17.1% FAI ytd y/y (16.8% y/y) in June, from 17.2% (16.8% y/y) in May.

Here’s more from Barclays:

We forecast M2 growth to rise to 13.7% in June, from 13.4% in May.

We expect aggregate financing to rise to CNY1.5trn in June, on strong new loans, solid bond financing activity and a resumption of equity financing.