China experienced an 8.0% rise in the M2 money supply in April compared to the previous year, exceeding expectations of a 7.3% increase. This followed a 7.0% growth in the previous month.

New yuan loans amounted to ¥280.0 billion, which was below the forecast of ¥700.0 billion, while in the previous period, they were at ¥3.64 trillion. The decrease in new bank loans comes after a sharp rise in March.

Stimulus Response and M2 Growth

Policymakers had previously increased stimulus in response to potential trade tensions with the United States. Even with the decline in new loans, outstanding yuan loans are estimated to have grown by 7.2% year-on-year as of April.

The data shows that money in the economy, measured by the M2 supply, has grown more quickly than many had expected. A faster expansion in this figure generally points to more liquidity being available in the system, which can be both a support for credit markets and a reflection of monetary authorities continuing to prop up activity through indirect means.

However, even with this boost in broader money, actual new lending by banks was sharply lower than predicted. In simple terms, while there is more cash around, banks issued far fewer loans than they did the month before. The expected figure was quite high, so part of the drop-off may be seasonal or due to borrowing having been pulled forward into March. Still, the gap between what was forecast and what occurred is too wide to be shrugged off as normal variation.

The fact that new loans have dipped while overall outstanding lending is still ticking up tells us that repayments haven’t outweighed disbursements, yet the pace is slowing. This often happens when appetite for new debt weakens or when lenders become more cautious. It’s worth noting that the official lending figures in April are far out of sync with the broader M2 growth, suggesting other liquidity channels—potentially through local government stimulus or off-balance sheet activity—might be doing the heavy lifting.

When observing this contradiction, it’s not the absolute numbers that matter, but what they say about risk-taking and direction. Loan volumes falling during a time of support indicate a reluctance somewhere in the credit chain. That could be from firms not seeing value in taking on more debt, or perhaps banks applying stricter standards. Either case typically dampens enthusiasm in rate-sensitive markets.

Monitoring Credit and Liquidity Trends

We see room now to focus closely on short-term rate spreads and relative value between tenors. Funding pressures are not immediately apparent, but this kind of policy environment encourages hedging against credit curve steepening. Those involved in options with exposure to bank funding costs may want to adjust volatility assumptions, as the spread between broader liquidity and new issuance may begin to affect overnight and term funding differently.

PBoC guidance is best read not from the rates they publish but from the volumes and borrower behaviour—right now both are mismatched. If liquidity is accumulating but not entering the real economy through straightforward credit channels, then pressure may shift to local governments to absorb fresh capital. That usually feeds into highly policy-driven sectors, such as infrastructure or real estate refinancing.

We prefer, at this stage, to monitor directional bias in medium-date futures, particularly those hedging against shallow economic recovery. Although nominal growth appears well-supported, the current lack of loan issuance calls into question whether this support is translating into sustained demand on the ground.

Rates and credit bifurcation makes it less effective to hedge both risks through a single strategy. A more cautious rotation is recommended, aimed at shorter expiries and collars that can capture volatility from potential data surprises. Monitoring how spreads react in speculative-grade sectors will also provide early clues to systemic risk, should lending remain below average for another two months.

As new figures come out in the weeks ahead, it’s the deviation from these established trends—not simply the direction—that will demand attention.

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