In May, the acceleration of government bond issuance drove the repair of social financing, while the credit side faced short-term demand weakness and the impact of stopping "manual interest supplementation". With the arrival of government bond funds and the implementation of infrastructure projects, it is expected to drive supporting financing demand, alleviating the growth pressure on the asset side. In the medium and long term, the shift in policy orientation will promote the optimization of bank credit structure and the transformation of business models, guiding the industry to better adapt to the needs of high-quality economic development.

On June 14, the People's Bank of China released the social financing financial data for May 2024. In May, social financing increased by 2.07 trillion yuan, an increase of 0.5 trillion yuan year-on-year; the stock of social financing increased by 8.4% year-on-year, up by 0.1 percentage points month-on-month; in May, the increase in RMB loans was 0.95 trillion yuan, a decrease of 0.41 trillion yuan year-on-year; the growth rate of M1 was -4.2%, down by 2.8 percentage points month-on-month; the growth rate of M2 was 7%, down by 0.2 percentage points month-on-month.

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In May, the increase in social financing was 2.06 trillion yuan, an increase of 508.8 billion yuan year-on-year, turning positive from negative; as of the end of May, the stock of social financing was 391.93 trillion yuan, a year-on-year increase of 8.44%, and the growth rate rebounded compared to the end of April. The improvement in social financing data was mainly driven by government bond issuance, while credit demand remained weak, the phenomenon of bill volume continued, and the impact of stopping "manual interest supplementation" continued to affect corporate deposit and loan performance.

In May, the increase in RMB loans was 819.7 billion yuan, a decrease of 402.2 billion yuan year-on-year; the increase in government bonds was 1.23 trillion yuan, an increase of 669.5 billion yuan year-on-year, mainly affected by the acceleration of special bond issuance and the issuance of ultra-long-term special treasury bonds; the increase in corporate bond financing was 28.5 billion yuan, an increase of 242.9 billion yuan year-on-year; the increase in non-financial corporate domestic stock financing was 11.1 billion yuan, a decrease of 64.2 billion yuan year-on-year; off-balance-sheet financing decreased by 111.5 billion yuan, a decrease of 34.2 billion yuan year-on-year; among them, the decrease in undiscussed bank acceptance bills was 133 billion yuan, a decrease of 46.5 billion yuan year-on-year.

Residential and corporate financing demand is weak, and bill volume continues: as of the end of May, the balance of RMB loans from financial institutions was 248.73 trillion yuan, a year-on-year increase of 9.3%, lower than the level at the end of April; in May alone, financial institutions increased RMB loans by 950 billion yuan, a decrease of 410 billion yuan year-on-year. Looking at the departments, the allocation of short-term and long-term loans from the residential sector was weak, and continued to decline year-on-year. In May alone, the increase in loans from the residential sector was 75.7 billion yuan, a decrease of 291.5 billion yuan year-on-year; among them, the increase in short-term loans was 24.3 billion yuan, a decrease of 174.5 billion yuan year-on-year; the increase in long-term loans was 51.4 billion yuan, a decrease of 117 billion yuan year-on-year.

Affected by the cessation of "manual interest supplementation," short-term loans continued to decrease, long-term credit demand was weak, and bill volume continued. In May alone, the increase in corporate loans was 740 billion yuan, a decrease of 115.8 billion yuan year-on-year; among them, short-term loans decreased by 1.2 billion yuan, a decrease of 155 billion yuan year-on-year; the increase in long-term loans was 500 billion yuan, a decrease of 269.8 billion yuan year-on-year; the increase in bill financing was 357.2 billion yuan, an increase of 315.2 billion yuan year-on-year; the increase in non-bank institution loans was 36.3 billion yuan, a decrease of 24.1 billion yuan year-on-year.

In May, M1 and M2 changed by -4.2% and 7% year-on-year, respectively, with the growth rate continuing to weaken, and the M1-M2 spread was -11.2%, expanding compared to April. As of the end of May, the balance of RMB deposits from financial institutions was 293.26 trillion yuan, a year-on-year increase of 6.7%. In May alone, the increase in RMB deposits from financial institutions was 1.68 trillion yuan, an increase of 220 billion yuan year-on-year; among them, the increase in residential sector deposits was 420 billion yuan, a decrease of 116.4 billion yuan year-on-year; corporate sector deposits decreased by 800 billion yuan, an increase of 660.7 billion yuan year-on-year; the increase in fiscal deposits was 763.3 billion yuan, an increase of 526.4 billion yuan year-on-year; the increase in non-bank deposits was 116 trillion yuan, an increase of 837.9 billion yuan year-on-year. The acceleration of government bond issuance drove the improvement of fiscal deposits, and at the same time, affected by the cessation of "manual interest supplementation," corporate demand deposits were lost, and residential deposits returned to financial management.

The acceleration of government bond issuance drove the repair of social financing, and the credit side faced short-term demand weakness and the impact of stopping "manual interest supplementation." However, with the arrival of government bond funds and the implementation of infrastructure projects, it is expected to drive supporting financing demand, alleviating the growth pressure on the asset side. In the medium and long term, the shift in policy orientation will promote the optimization of bank credit structure and the transformation of business models, guiding the industry to better adapt to the needs of high-quality economic development.

The scale of government bond financing increased significantly.

From the perspective of social financing, in May, social financing increased by 2.07 trillion yuan, an increase of 513.2 billion yuan compared to the same period in 2023, with the new scale exceeding the 1.95 trillion yuan expected by Wind Consensus Forecast. The stock of social financing increased by 8.4% year-on-year, up by 0.1 percentage points compared to the year-on-year growth rate in April.From the analysis of the social financing structure, in terms of on-balance-sheet credit, with the issuance of government bonds, there has been a corresponding increase in corporate medium and long-term supporting loans, and bills still have a certain amount of impact. In May, new RMB loans increased by 815.7 billion yuan, which was 406.2 billion yuan less than the high base in the same period of 2023. In terms of off-balance-sheet credit, the decline in undiscussed bank acceptance bills was significant. This month, bills still increased significantly, under these circumstances, undiscussed bank acceptance bills continued to decrease by 133.2 billion yuan, which was 46.3 billion yuan less than the same period last year; trust financing was 22.4 billion yuan, a year-on-year decrease of 7.9 billion yuan, entrusted loans decreased by 0.8 billion yuan, a year-on-year decrease of 4.3 billion yuan.

At the same time, the scale of government bond financing achieved high growth. In May, new government bond financing increased by 1.23 trillion yuan, an increase of 668.2 billion yuan year-on-year. The bond issuance progress in 2024 was relatively slow, and the Central Political Bureau meeting held at the end of April proposed to issue and use ultra-long-term special treasury bonds as soon as possible, accelerate the issuance and use of special bonds, and maintain the necessary fiscal expenditure intensity. Subsequently, ultra-long-term special treasury bonds with a term of 30 years and 20 years began to be issued, driving the scale of government bond issuance to expand. Wind data shows that the scale of government bond issuance in May increased to 1.9 trillion yuan. In June (as of now), the scale of government bond issuance has approached 1.4 trillion yuan, which is expected to provide certain support for social financing.

Corporate bonds increased year-on-year under a low base, and stock financing continued to decrease year-on-year. In May, new corporate bond financing increased by 31.3 billion yuan, which was 245.7 billion yuan more than the low base in the same period of 2023, and stock financing increased by 11.1 billion yuan, which was 64.2 billion yuan less than the same period last year, which is expected to be related to the continuous optimization of IPO and refinancing policies.

From the perspective of credit situation, in May, new loans increased by 950 billion yuan, which was 410 billion yuan less than the same period last year, slightly lower than the consensus expectation of 1.02 trillion yuan from Wind. The credit balance grew by 9.3% year-on-year, and the growth rate decreased by 0.3% month-on-month.

From the analysis of credit structure, in terms of residential loans, short-term and medium and long-term loans turned positive seasonally from negative. In May, short-term and medium and long-term loans for residents increased by 24.3 billion yuan and 51.4 billion yuan respectively, both turning positive from negative month-on-month, and decreased by 174.5 billion yuan and 117 billion yuan year-on-year respectively under the high base in the same period of 2023.

In terms of corporate loans, corporate medium and long-term supporting loans increased, and bills still had a certain impact. In May, with the increase in the scale of government bond issuance, corporate medium and long-term loans also increased marginally. However, under the background of weak effective demand, bills still had a certain impact. Corporate short-term loans, medium and long-term loans, and net bill financing were -120 billion yuan, 500 billion yuan, and 357.2 billion yuan respectively, with increases of -155 billion yuan, -269.8 billion yuan, and 315.2 billion yuan respectively compared to the same period in 2023. Non-bank credit increased by 36.3 billion yuan, which was 24.1 billion yuan less than the same period in 2023.

Tracking the demand for mortgage loans in May and June: The transaction area of commercial housing in the top 10 and 30 large cities in May was 1.281 million square meters and 2.648 million square meters respectively, both lower than the same period in previous years. In the first half of June, the transaction area of commercial housing in the top 10 and 30 large cities was 1.206 million square meters and 2.34 million square meters respectively, which was still lower than May on the margin.

In terms of liquidity, the year-on-year growth rate of M2 decreased, and M1 decreased. In May, M0, M1, and M2 increased by 11.7%, -4.2%, and 7% year-on-year respectively, which was 0.9 percentage points, -2.8 percentage points, and -0.2 percentage points respectively compared to the same period last month. The difference in growth rate between M2 and M1 was 11.2%, which was 2.6 percentage points higher than the previous value. It is expected that the corporate demand deposit will still decrease to a certain extent due to the impact of the manual interest supplementation rectification policy.

In May, the growth rate of deposits increased by 6.7%, which was 0.1 percentage points higher than April, and it was the first time that the growth rate increased month-on-month since October 2023. In May, new deposits increased by 1.68 trillion yuan, which was 22 billion yuan more than the same period last year. On the one hand, the high increase in government bond issuance formed a large amount of fiscal deposits, and on the other hand, the manual interest supplementation rectification also led to a high increase in the scale of non-bank institution deposits.

In May, new residential deposits increased by 420 billion yuan, which was 116.4 billion yuan less than the same period in 2023; in May, corporate deposits decreased by 800 billion yuan, which was 660.7 billion yuan more than the same period last year. It is expected that under the manual interest supplementation rectification policy, the arbitrage space for enterprises was compressed, and some enterprises chose to purchase financial management and asset management products; in May, fiscal deposits increased by 763.3 billion yuan, which was 526.4 billion yuan more than the same period last year, which was consistent with the high increase in the scale of government bond issuance this month; in May, non-bank deposits increased by 1.16 trillion yuan, which was 837.9 billion yuan more than the same period last year. It is expected that under the manual interest supplementation rectification, some deposits were transferred to insurance, financial management subsidiaries and other non-bank institutions.实体信贷需求仍较弱

实体信贷需求依然疲软

实体信贷需求仍然不强

5月政府债发行提速，社融同比多增。5月末存量社融同比增长8.4%，增速环比回升0.1个百分点。当月社融新增2.07万亿元，同比多增0.5万亿元，其中主要是政府债大量发行贡献。5月政府债券发行明显提速，新增1.23万亿元，同比多增0.7万亿元；人民币贷款新增0.8万亿元，同比少增0.4万亿元。表外融资、企业债券、股票融资分别减少1116亿元、增加313亿元、111亿元。

In May, the issuance of government bonds accelerated, leading to an increase in social financing (TSF) compared to the same period last year. At the end of May, the outstanding TSF grew by 8.4% year-on-year, with a 0.1 percentage point increase from the previous month. The TSF increased by 2.07 trillion yuan during the month, which is 0.5 trillion yuan more than the same period last year, mainly due to the substantial issuance of government bonds. The issuance of government bonds in May significantly accelerated, with an increase of 1.23 trillion yuan, 0.7 trillion yuan more than the same period last year; the new yuan loans increased by 0.8 trillion yuan, 0.4 trillion yuan less than the same period last year. Off-balance-sheet financing, corporate bonds, and stock financing decreased by 11.16 billion yuan, increased by 3.13 billion yuan, and 1.11 billion yuan, respectively.

5月信贷需求仍较弱，存在票据冲量现象。5月末人民币贷款同比增长9.3%，增速环比下降0.3个百分点，连续14个月下降。当月人民币贷款新增0.95万亿元，同比少增0.41万亿元。

In May, credit demand remained weak, with a phenomenon of bill financing. At the end of May, the growth rate of yuan loans increased by 9.3% year-on-year, a decrease of 0.3 percentage points from the previous month, marking a continuous decline for 14 months. The new yuan loans increased by 0.95 trillion yuan during the month, which is 0.41 trillion yuan less than the same period last year.

在企业端，5月企业贷款新增7400亿元，同比少增1158亿元，另一方面，银行票据冲量现象仍存。5月票据融资新增3572亿元，未贴现票据净减少1332亿元，且5月下旬票据贴现利率维持低位，均显示银行存在一定的票据冲量现象。从边际来看，票据冲量较4月有所下降。

On the corporate side, in May, corporate loans increased by 740 billion yuan, 115.8 billion yuan less than the same period last year. On the other hand, the phenomenon of bill financing still exists in banks. In May, bill financing increased by 357.2 billion yuan, while the net reduction of undiscounted bills was 133.2 billion yuan. Moreover, the bill discount rate remained low in the latter half of May, indicating that banks still have a certain amount of bill financing. From a marginal perspective, bill financing has decreased compared to April.

继4月企业短贷减少4100亿之后，5月企业短贷减少1200亿。企业短贷连续下降首先是由于实体融资需求较为不足，其次受到"手工补息"整顿存款的影响，部分企业或以存款偿还短贷。5月企业中长贷新增5000亿元，同比少增2698亿元。结合5月PMI、CPI等经济数据偏弱的表现，均指向当前实体需求弱、企业盈利空间窄、投资意愿偏弱。

Following the reduction of 410 billion yuan in corporate short-term loans in April, corporate short-term loans decreased by 120 billion yuan in May. The continuous decline in corporate short-term loans is primarily due to the insufficient demand for real financing, followed by the impact of "manual interest supplementation" on deposit rectification, with some enterprises possibly using deposits to repay short-term loans. In May, corporate medium and long-term loans increased by 500 billion yuan, 269.8 billion yuan less than the same period last year. Combining the weak performance of May's PMI, CPI, and other economic data, all point to the current weak real demand, narrow corporate profit margins, and weak investment willingness.

在居民端，5月居民贷款新增757亿元，同比少增2915亿元；环比有所提升，但融资需求难言改善；其中，居民短贷、中长贷分别新增243亿元、514亿元，同比少增1745亿元、1170亿元。目前，居民收入预期仍然较弱，购房及消费需求有待修复，后续需关注居民就业和收入压力、以及房价边际表现。

On the residential side, in May, residential loans increased by 75.7 billion yuan, 291.5 billion yuan less than the same period last year; there was a slight increase on a month-on-month basis, but the financing demand is still difficult to improve. Among them, short-term and medium and long-term loans for residents increased by 24.3 billion yuan and 51.4 billion yuan, respectively, 174.5 billion yuan and 117 billion yuan less than the same period last year. Currently, the expectation of residents' income is still weak, and the demand for housing purchases and consumption needs to be repaired. Subsequently, attention needs to be paid to the employment and income pressure of residents, as well as the marginal performance of housing prices.

5月末M2同比增长7%，增速环比下降0.2个百分点。M1同比下降4.2%，降幅环比扩大2.8个百分点，反映手工补息整改影响持续，企业活期存款流向定期存款、理财产品或偿还短贷的情况延续。

At the end of May, M2 grew by 7% year-on-year, with a decrease of 0.2 percentage points from the previous month. M1 decreased by 4.2% year-on-year, with an increase of 2.8 percentage points from the previous month, reflecting the continued impact of manual interest supplementation rectification, and the situation of corporate demand deposits flowing to fixed deposits, financial products, or repaying short-term loans continues.

5月人民币存款新增1.68万亿元，同比多增2200亿元。从结构上看，在理财、债基等产品与存款的比价效应下，居民、企业一般性存款流入非银机构的现象较为明显；其中，企业存款减少8000亿元，同比多减6607亿元。居民存款新增4200亿元，同比少增1164亿元。非银金融机构存款新增1.16万亿元，同比多增8379亿元。

In May, yuan deposits increased by 1.68 trillion yuan, 220 billion yuan more than the same period last year. From a structural perspective, under the comparative effect of financial management, bond funds, and other products with deposits, the phenomenon of general deposits of residents and enterprises flowing into non-bank institutions is quite obvious; among them, corporate deposits decreased by 800 billion yuan, 660.7 billion yuan more than the same period last year. Residential deposits increased by 420 billion yuan, 116.4 billion yuan less than the same period last year. Non-bank financial institutions' deposits increased by 1.16 trillion yuan, 837.9 billion yuan more than the same period last year.

从央行政策定调及近期举措来看，目前国内信用政策的核心在于盘活存量、提升质效。为适配经济结构转型、高质量发展，贷款正在经历换挡减速、结构优化的阶段。从行业基本面来看，考虑到降息周期尚未结束、息差仍然承压，信贷规模增速存在放缓趋势，拨备反哺力度趋弱，预计银行业绩增速短期难言改善。但积极因素也在增多，包括存款成本改善进程有望加快，资产质量预期边际改善等。

From the central bank's policy orientation and recent actions, the core of the current domestic credit policy lies in revitalizing the stock and improving quality and efficiency. To adapt to the transformation of the economic structure and high-quality development, loans are going through a stage of gear shifting, deceleration, and structural optimization. From the perspective of the industry's basic situation, considering that the interest rate reduction cycle has not ended and the interest spread is still under pressure, the growth rate of credit scale is expected to slow down, the strength of provisions to nourish back is weakening, and it is expected that the growth rate of bank performance will be difficult to improve in the short term. However, positive factors are also increasing, including the acceleration of the deposit cost improvement process, and the marginal improvement of asset quality expectations, etc.

抑空转与弱需求相交织

Suppressing empty rotation and weak demand are intertwined.Guotai Junan Securities believes that the financial data for May indicates a complex interplay between the suppression of idle capital and weak credit demand. The 2024 "Government Work Report" explicitly called for "avoiding the idle rotation of funds." Since April, banks have begun to standardize manual interest supplementation, leading to a significant decrease in the inflated and non-standard scale of deposits and loans, causing considerable disturbance to financial data. We have observed that in April, corporate short-term loans decreased by 410 billion yuan, and in May, they decreased by 120 billion yuan, which are areas significantly affected by the standardization of manual interest supplementation. Looking at the trend, the reduction in corporate short-term loans is slowing down at the margin, and it is expected that the subsequent standardization of manual interest supplementation will weaken its disruptive impact on credit.

In addition to this, we have also observed that the actual credit demand from the real economy remains weak. On one hand, the addition of new public medium and long-term credit continues to decrease year-on-year, showing relative weakness in growth since November 2023, mainly due to the impact of local government debt resolution, with some areas experiencing suppressed new project starts and financing demands; on the other hand, both short-term and medium to long-term credit for the residential sector have seen less year-on-year increase, reflecting the low willingness of current micro-retail entities to actively increase their debt, and since May 2024, the lower limit of newly issued housing mortgage loan interest rates has been canceled, with new mortgage loan interest rates in most regions of the country quickly falling, it is expected that the difference between existing and newly issued mortgage loan interest rates has returned to the levels before September 2023, and the scale of residents' early loan repayments may rise again.

Under the circumstances where the growth of general public loans and retail credit has slowed down year-on-year, banks have significantly increased the issuance of bill discounting to fill the credit scale. From the perspective of credit structure, there is currently a lack of effective financing demand from the real sector.

Since May, the pace of government bond issuance has noticeably accelerated, driving a net increase of 1.23 trillion yuan in government bond balance for the month, an additional 670.3 billion yuan year-on-year, becoming the main driver for the additional 520 billion yuan in new social financing year-on-year in May. It is expected that there will still be some sustainability in the coming months.

As of the end of May, the growth rate of social financing stock was 8.4%, up by 0.1 percentage points from the end of April. The growth rate of social financing excluding government bonds was 7.1%, continuing the downward trend. Overall, under the current circumstances where effective demand from enterprises and residents is insufficient, the continuous leverage increase and expenditure strength of the government sector have become an important support for the macro economy.

It is worth noting that as of the end of May, the M1 growth rate was -4.2%, a historical low since the data has been recorded, mainly due to the slow fiscal expenditure strength leading to a slowdown in the transfer of government deposits to corporate deposits, coupled with the standardization of manual interest supplementation resulting in a significant reduction in inflated deposits. Looking ahead, as the impact of standardizing manual interest supplementation weakens and fiscal expenditure progresses, the M1 growth rate is expected to stabilize or slightly improve.

In May, the newly issued corporate loan interest rate was 3.71%, a decrease of 6 basis points month-on-month, and the newly issued personal housing mortgage loan interest rate was 3.64%, also a decrease of 6 basis points month-on-month. This reflects the current trend of decreasing loan pricing levels in an environment of weak corporate and residential credit demand.

The significant downward trend in M1 growth in May has sparked much discussion in the market. However, from the market's intuitive perception, the insufficient effective demand from micro-entities and the relatively high operating pressure on enterprises are objective realities, and the stock market has also become more volatile as a result. Now, as the regulatory authorities correct inefficient or ineffective financing demands, the financial data for May more objectively reflect the actual state of the macro economy, and the stock market's pricing for this may not be too obvious, with short-term emotional impacts far greater than the substantive effects.

In general, the core focus of domestic and foreign investors on the macro economy is still on the real estate market. Changes in external demand, the strength of fiscal expenditure, and real estate-related variables have a greater impact on the capital market. In recent years, the impact of financial data on the capital market has been weakening, and it is expected that fluctuations in financial data will not significantly change the market's expectations for the macro economy.

From the investment logic of bank stocks, it is expected that the macro level will continue to maintain a stable growth policy tone, and incremental policies for real estate are also expected to be gradually introduced, reducing the significant downward risk of the macro economy. Although the fundamentals of banks are still in a downward trend, some operating indicators and sub-sectors perform better than market expectations, and pessimistic sentiments will gradually be corrected. Currently, the relatively low valuation of the overall sector and the low holdings of active funds make bank stocks a field favored by incremental funds.Policies Begin to Accelerate and Gain Momentum

From the perspective of the newly added social financing structure, direct financing is the main support for the year-on-year increase in social financing. Driven by policies, the issuance of government bonds has increased, leading to a rise in government debt financing. Affected by factors such as "squeezing out water" from the data, the increase in credit has dragged down the year-on-year increase in social financing. In May, the newly added social financing口径 RMB loans were 819.7 billion yuan, 402.2 billion yuan less than the same period last year, and the increase was lower than the Wind consensus expectation of 1.02 trillion yuan.

Corporate loans increased by 740 billion yuan in May, 115.8 billion yuan less than the same period last year. Corporate long-term loans increased by 500 billion yuan, and due to the high base in 2023, they were 269.8 billion yuan less than the same period last year. The increase in credit is still concentrated on the corporate side. Against the backdrop of rectifying manual interest subsidies, some enterprises with high-interest demand deposits may have repaid short-term loans, and corporate short-term loans decreased by 120 billion yuan in May. Bill financing continued the trend of year-on-year increase in April, with an additional 357.2 billion yuan in May, an increase of 315.2 billion yuan year-on-year, providing certain support for the increase in credit.

The increase in residential credit turned positive, but residential credit demand is still hovering at a low level. In May, residential households added 75.7 billion yuan, 291.5 billion yuan less than the same period last year. In May, multiple departments jointly introduced policies to ensure the delivery of houses, providing multiple benefits from both the supply and demand sides of the real estate market, and the transaction area of commercial housing in 30 large and medium-sized cities in May narrowed the year-on-year decline.

The highlight of May's social financing is the increase in direct financing driven by policies. In May, the scale of direct financing increased by 1.27 trillion yuan, and due to the dual impact of the accelerated issuance of government bonds and the low base of corporate bond additions last year, it increased by 848.2 billion yuan year-on-year; among them, government bonds increased by 1.23 trillion yuan, an increase of 669.5 billion yuan year-on-year. Wind statistical data show that in May, the net financing of newly issued government bonds, including national bonds and local government bonds, was 691.3 billion yuan and 634.9 billion yuan, respectively, an increase of 614.6 billion yuan and 129.7 billion yuan in net financing compared to the same period last year, indicating an accelerated fiscal effort. It is particularly worth noting that under the policy background of the accelerated issuance of special treasury bonds, the central government has recently accelerated its leverage-increasing pace. In the first five months of 2024, the net financing of national bonds increased by 517.9 billion yuan compared to the same period in 2023.

The year-on-year growth rates of M1 and M2 were -4.2% and 7%, respectively, with a decline of 2.8 percentage points and 0.2 percentage points, respectively. The recent slowdown in M1 growth has attracted market attention. On the one hand, due to the prohibition of manual interest subsidies and other factors, the data "water" has been "squeezed out"; on the other hand, it is related to the slowdown in credit expansion, leading to a weakening of derivative capabilities. With the subsequent efforts of fiscal expenditure and the effects of real estate policies, it is expected that the growth rate of M1 will get rid of negative growth and rebound.

In mid-May, the real estate "policy package" was released, and subsequent local policies were implemented. In the early stage of 2024, the pace of government bond issuance was relatively slow, and the May social financing data has already reflected the accelerated pace of fiscal expansion, and the positive signal of central leverage has also emerged. Looking ahead, the proactive fiscal policy in 2024 will be strong, with the continued issuance of special treasury bonds in June and the acceleration of local debt issuance. According to the previous plan, all additional bond projects will start construction before the end of June, which is expected to drive more supporting financing needs, and the demand for the real economy is expected to improve.

Overall, policies have begun to accelerate and improve efficiency, and stable real estate and broad fiscal policies are on the way. Looking forward, the effectiveness of policies is expected to support economic recovery. It is recommended to continue to focus on the rhythm of fiscal efforts and the effects of previous policies.

The financial "water-squeezing" continues

In May, the year-on-year growth rates of M1 and M2 were -4.2% (a decrease of 2.8% month-on-month) and 7% (a decrease of 0.2% month-on-month), respectively. Affected by the rectification of interest subsidies, M1 continued to grow negatively, and the M2-M1 spread continued to widen. In May, RMB deposits increased by 220 billion yuan year-on-year, with fiscal deposits and non-bank deposits as the main support, increasing by 526.4 billion yuan and 837.9 billion yuan year-on-year, respectively; residential deposits flowed into financial management, with a decrease of 116.4 billion yuan year-on-year; corporate deposits decreased by 80 billion yuan in a single month, with an increase of 660.7 billion yuan year-on-year, corporate demand deposits still have the pressure of outflow, but the scale of outflow is much smaller than in April.In May, the new social financing (社融) increased by 2.07 trillion yuan, which is an additional 513.2 billion yuan compared to the same period last year, with the stock growth rate at 8.4% (a sequential increase of 0.1 percentage points, with government bonds being the main support). Renminbi loans (social financing口径) increased by 815.7 billion yuan in May, lower than market expectations (Wind consensus forecast was 1.02 trillion yuan), with a year-on-year decrease of 406.2 billion yuan; entrusted loans and credit loans were basically flat year-on-year; in late May, the rediscount rate of bank bills for state-owned large banks and joint-stock banks continued to operate at a low level, falling below 0.5% at the end of the month, reflecting an increased effort by banks to use bills to boost volumes, with the amount of undiscussed bank acceptance bills decreasing by 133.2 billion yuan in the month.

In terms of direct financing, the fiscal policy was marginally relaxed in May, with the issuance of ultra-long-term special government bonds starting, and government bond financing increased by 1.23 trillion yuan in the month, an additional 668.2 billion yuan year-on-year; against the low base of the same period in 2023, corporate bonds increased by an additional 245.7 billion yuan year-on-year.

Looking at Renminbi loans, the financial "water squeezing" is still continuing, with weak total loan growth and poor structure. In May, Renminbi loans (financial data口径) increased by 950 billion yuan, a year-on-year decrease of 410 billion yuan, with corporate, residential, and non-bank loans all showing a year-on-year decrease.

General corporate loan growth did not meet expectations, with bill financing providing support. In May, the manufacturing PMI fell back below the boom-bust line, and the actual financing demand could not support loan growth. Coupled with the contraction of arbitrage short-term loans after interest supplementation rectification, corporate short-term loans continued to show negative growth, with a year-on-year decrease of 155 billion yuan; medium and long-term loans increased by 500 billion yuan in the month, a year-on-year decrease of 269.8 billion yuan, with the stock growth rate decreasing by 0.4 percentage points month-on-month to 13.39%; as the financial assessment method shifts from scale orientation to profit orientation, banks pay more attention to the balance of quantity and price in credit allocation, reducing the scale of low-yield loans, and it is expected that corporate loan yields will gradually stabilize; general loan growth is weak, with bill financing increasing by an additional 315.2 billion yuan year-on-year.

Residential short-term and medium to long-term loans are both under pressure. In May, residential loans decreased by 291.5 billion yuan year-on-year, of which, short-term loans decreased by 174.5 billion yuan year-on-year, and medium to long-term loans decreased by 117 billion yuan year-on-year. The demand for mortgage loans is not strong, and due to the increase in the interest rate difference between existing mortgages and newly issued mortgages, the phenomenon of early repayment still exists. At the end of May, housing purchase restrictions in Shanghai, Guangzhou, and Shenzhen were relaxed, the down payment ratio was reduced, and the lower limit of mortgage loan interest rates was lowered, which may boost mortgage demand subsequently.

During the economic gear shift, the relationship between credit and economic growth has weakened, and more attention should be paid to the liability side in addition to demand. Under the pressure of narrowing interest spreads, regulators may reduce the cost pressure on the liability side of banks by adjusting the listed deposit rates and restricting high-interest deposit solicitation behaviors. However, the impact of canceling "manual interest supplementation" continues to ferment, and corporate demand deposits are still under pressure.

In May, social financing increased year-on-year, with government bonds being the main support. In May 2024, new social financing increased by 2.07 trillion yuan, slightly lower than market expectations (the average forecast of Tonghuashun was 2.13 trillion yuan), and at a relatively high level for the same period in history. It increased by 0.51 trillion yuan year-on-year, of which the positive contribution mainly came from government bonds, bill financing, and corporate bonds, which increased by 0.67 trillion yuan, 0.32 trillion yuan, and 0.24 trillion yuan year-on-year, respectively, while the drag mainly came from Renminbi loans, which decreased by 0.41 trillion yuan year-on-year. At the end of May, the stock of social financing was 391.93 trillion yuan, with a year-on-year growth of 8.4%, and the growth rate increased by 0.1 percentage points compared to the previous month.

Credit was lower than expected, with bill financing being obvious. In May, under the credit口径, Renminbi loans increased by 0.95 trillion yuan, lower than market expectations (the average forecast of Tonghuashun was 1.13 trillion yuan), with a year-on-year decrease of 410 billion yuan. Among them, residential loans decreased by 291.5 billion yuan year-on-year: short-term loans and medium to long-term loans decreased by 174.5 billion yuan and 117 billion yuan year-on-year, respectively, indicating that residential consumption and housing purchase demand are still weak. The transaction area of commercial housing in 30 major cities decreased by 35.72% year-on-year, still hovering at a low level. Considering the frequent policy warm winds since May, such as the central bank setting up a 300 billion yuan guaranteed housing reloan, canceling the national mortgage loan interest rate floor, reducing the down payment ratio for mortgages, and lowering the interest rates for housing provident fund loans, etc., it may help improve the expectations of the real estate market.

Corporate loans decreased by 115.8 billion yuan year-on-year, with bill financing as support: short-term loans decreased by 155 billion yuan year-on-year; medium and long-term loans decreased by 269.8 billion yuan year-on-year; bill financing increased by an additional 315.2 billion yuan year-on-year, ranking second in history for the same period, with obvious bill financing. The weak credit performance may be due to the optimization and adjustment of the financial industry's value-added accounting method (shifting from mainly referring to deposit and loan balances to mainly referring to profit indicators), regulatory guidance on balanced credit allocation and standardized manual interest supplementation, and insufficient actual financing demand.

Government bond issuance accelerated, and corporate bonds increased year-on-year. In May, direct financing increased by 848.2 billion yuan year-on-year, mainly due to the acceleration of government bond issuance (the monthly value set a new high for the same period in history, ranking fourth in history, with an additional 669.6 billion yuan year-on-year), followed by corporate bonds with a low base (an additional 242.9 billion yuan year-on-year). In May, off-balance-sheet financing increased by an additional 34.2 billion yuan year-on-year, of which, non-standard financing decreased year-on-year (entrusted loans decreased by 4.4 billion yuan year-on-year, trust loans decreased by 8 billion yuan year-on-year), but undiscussed bank acceptance bills decreased by 46.6 billion yuan less year-on-year. The off-balance-sheet bill financing may have caused some off-balance-sheet bill financing to shift to the on-balance-sheet, and overall, the stock of on-balance-sheet + off-balance-sheet bills increased by 3.22% year-on-year, with the growth rate increasing by 2.4 percentage points.The growth rate of deposits has rebounded, with the growth rates of M1 and M2 reaching new lows again. At the end of May, the balance of RMB deposits increased by 6.7% year-on-year, with the growth rate increasing by 0.1 percentage points compared to the end of the previous month. In May, RMB deposits increased by 1.68 trillion yuan, an increase of 220 billion yuan year-on-year. Among them, the main reasons were non-bank deposits increased by 837.9 billion yuan year-on-year and fiscal deposits increased by 526.4 billion yuan year-on-year, while non-financial corporate deposits decreased by 660.7 billion yuan year-on-year and resident deposits decreased by 116.4 billion yuan year-on-year.

The changes in the structure of deposits and the slowdown in the year-on-year growth rates of M1 and M2 may mainly be due to the relocation of deposits under the influence of standardized manual interest supplementation and the crackdown on capital arbitrage, as well as the reduction in deposit generation under the influence of weak real entity financing demand and financial data "squeezing out water."

Attention should be paid to the process of economic recovery and the valuation repair opportunities of bank stocks. In May, the acceleration of government bond issuance and the low base effect of corporate bonds provided support for the rebound in social financing growth rate. The current financial data is still affected by "squeezing out water" and "anti-arbitrage" and other aspects, and it is expected that data disturbances will continue for a period of time in the future, and they cannot fully reflect the supply and demand situation of real entity financing. However, in the long term, short-term pain will help lay a good foundation for high-quality development of finance.

At present, China's financing demand is weak, market confidence and capital vitality are insufficient, and policy support is still needed. For banks, the overall credit growth center may decline under the guidance of regulatory balanced investment, and the short-term interest spread may still be under pressure, mainly due to the expectations of implicit LPR cuts and banks assisting in the resolution of local debt. However, at the same time, it is expected that regulators will take measures to protect bank interest spreads by guiding the decline of deposit interest rates.