China’s Credit Growth Measures Show Improvement in May

Financing, or the level of credit available, is crucial because it stimulates consumption and investment in an economy. By tracking credit growth in China (MCHI), investors can gauge patterns that forecast future demand.

Aggregate financing, China’s broadest measure of new credit and liquidity, came in at 1.22 trillion yuan for May compared to 1.05 trillion yuan for April. This compares favorably to the median estimate of 1.13 trillion yuan.

New yuan loans, or new lending minus loans repaid, were 900.8 billion yuan in May compared to 707.9 billion yuan in April. New yuan loans were almost in line with economists’ expectations of 900 billion yuan.

China’s M2 money supply measures M1 (cash and checking deposits) and near money. It’s important to gauge the level of liquidity in the economy. M2 grew by 10.6% year-over-year in May from a 10.1% growth in April. This measure also came in above consensus expectations of 10.5%.

China’s credit growth picked up in May compared to April. This might be due to easing measures the government has adopted. Any sustained growth in credit will translate into investment and a pickup in demand for steel.

This will be positive for iron ore miners like Rio Tinto (RIO), BHP Billiton (BLT) (BHP), Vale SA (VALE), and Cliffs Natural Resources (CLF). It also affects the iShares MSCI Global Metals & Mining Producers ETF (PICK) and the SPDR S&P Metals & Mining ETF (XME). PICK invests in the iron ore sector. It has 16.7%, 2.8%, and 10.9% holdings in BHP Billiton, Vale, and Rio Tinto, respectively. XME also invests in some of these stocks.