The PBoC today released detailed monetary data for April, allowing calculation of true M1, the preferred narrow money measure here. Six-month growth of the aggregate, seasonally adjusted, rose to a 14-month high but remains low by historical standards – see first chart. Allowing for the usual lead, the suggestion is that two-quarter nominal GDP expansion will stabilise at a weak level in the second / third quarters and recover modestly towards year-end.

A similarly downbeat message was delivered by April credit numbers released on Friday. Strong monthly flows of total social financing (TSF) in January and March led some commentators to claim that credit growth was picking up. As previously discussed, when seasonally adjusted and scaled by the outstanding stock, the monthly numbers were unimpressive. Six-month TSF expansion continued to move sideways in April, also at an historically weak level – first chart.

The disappointingly small response of narrow money trends to recent policy easing is highlighted by the second chart, showing year-on-year growth of true M1 and the 12-month change in the two-year government bond yield, plotted inverted. Falls in yields in 2005, 2008, 2011-12 and 2014-15 were followed by rises in true M1 growth of between 9.0 and 24.3 percentage points (pp). April true M1 growth of 4.7% was only 1.6 pp above a February low.

An optimist might point out that the lag from interest rate changes to money growth appears to have been lengthening, so a strong monetary pick-up could be about to kick in. The preferred explanation here, though, is that the transmission mechanism of policy has been weakened by the clampdown on shadow banking. This is a key element of longer-term financial reforms and is unlikely to be abandoned in response to an escalating US / Chinese trade war.