JP Morgan: Mainland China's credit data for April significantly below expectations, preferring the four major banks for defensive positioning.

J.P. Morgan released a research report stating that China's credit data in April was significantly weaker than expected, with both the scale of social financing and the new RMB loans falling far below market consensus and the bank's own predictions. Both household loans and corporate loans saw the largest monthly contractions on record. The bank believes that the weakness in credit in April was partially due to seasonal factors, but the extent exceeded expectations, prompting a more defensive position and a preference for the four largest state-owned banks with strong loan channels. The report indicates that the scale of social financing in April was 620 billion RMB, only half of the market expected 1.25 trillion RMB and J.P. Morgan's expected 1.24 trillion RMB. New RMB loans decreased by 10 billion, far below the market expectation of 300 billion and the bank's expectation of 271 billion. Household loans contracted by 787 billion RMB month-on-month, and corporate loans contracted by 870 billion RMB, both the largest monthly declines in history. Bill discounting increased significantly by 1.24 trillion RMB to fill the gap, which the bank believes sends a negative signal for mixed loan yield and net interest margin. The bank points out that retail loan demand has further deteriorated, with a year-on-year contraction of 0.7%, and short-term and medium- to long-term loans both showing month-on-month contractions, indicating continued weakness in mortgage and consumer loan demand. Although transaction volumes in first and second-tier cities have slightly improved in the real estate market, the weak performance of mortgage loans is still surprising. The slight widening of the gap between M1 and M2 growth to -3.6% reflects a weakening in transactional currency demand relative to precautionary savings, further confirming the signal of weak credit demand.