Right, so no matter what anyone tells you, there’s no way to get a solid read on whether or not China is having any success at getting a handle on the country’s out-of-control, batshit crazy shadow banking complex.
You can parse the TSF data, but you’ll get mixed signals and really this isn’t as simple as subtracting new RMB loans from the headline TSF print and saying: “there, that’s shadow credit.”
About a week ago, Goldman took a deep(ish)-dive into what the bank called “the shadowiest part of shadow credit” or, more simply, “the credit that is not even reflected in the shadow credit components of TSF.” You can read that post here, but their conclusion was as follows: “Our estimates suggest that the deceleration in credit has been sharper than [most people think].”
But again, the sheer complexity of the whole thing (including its chicken-egg-ish character that makes it impossible to separate cause from effect) means that depending on what you want to look at, you could come away thinking that the curbs are working splendidly (which, in a testament to the cruel irony of it all, would be bad news for China’s economy) or you could come away thinking credit growth is still running wild.
And so, while the latest TSF data seems to suggest that the effort to prevent financial institutions from borrowing to finance carry trades is working, what you’ll read below from Bloomberg seems to suggest the opposite.
Draw your own conclusions…
For every yuan that the People’s Bank of China injects into the nation’s financial system, it’s up to the banks to decide how far they stretch it in the form of loans to the economy.
Right now, they’re working overtime.
China’s money multiplier — the ratio between the broadest measure of money in use, M2, and base money created by the central bank — has climbed to the highest on records that date to 1997, data compiled by Bloomberg show. Each yuan of base money is being turned into more than 5 in the real economy.
The turbocharged multiplier is helping compensate for the drainage of cash caused by Chinese savers and companies venturing abroad. It’s also helping economic growth hold comfortably above the government’s target for at least 6.5 percent this year, even as China’s leadership tries to rein in excessive leverage in the financial system.
Yet the fact that the PBOC is getting more bang for its yuan doesn’t say anything about the productivity of the uses to which the money is put, according to Bloomberg Intelligence Chief Asia Economist Tom Orlik. Wasteful or risky lending could backfire on the economy — with the ratings cut by Moody’s Investors Service this week highlighting such concerns.
Looking forward, the government’s efforts to stem the issuance of risky debt may curb the money multiplier, in which case the PBOC may need to step in more via open market operations to ensure there’s enough cash sloshing around to keep the economy humming, according to a recent report by China International Capital Corp. economists led by Eva Yi.