China’s Credit Growth Collapses

Credit creation cratered in China last month as seasonal factors conspired with what certainty appears to be a continuation of lackluster demand trends to undermine official efforts aimed at stimulating the flagging economy.

Aggregate financing was just 618.9 billion yuan last month, well short of the 950 billion yuan consensus expected.

The range was 690 billion to 1.8 trillion, from 28 economists. In other words, the number missed even the most tepid estimate, and represented the slowest pace of credit growth in years.

New yuan loans were just 661.3 billion, below the 800 billion estimate. The range there was 520 billion to 1.15 trillion.

M2 growth was +8.4% YoY, in line with estimates.

The steep drop-off was expected given the holiday, but the figures are disappointing even taking the seasonal effect into account.

“While net increase in corporate bonds financing remained roughly the same as September, continued contraction in trust loans, entrusted loans and banker’s acceptance bills, muted local government special bond new issuance as well as moderated growth in RMB loans contributed to the weak credit data in October”, Goldman wrote Monday. “The anemic credit data – coming on the heels of data showing deepening deflation in the industrial sector – reinforce our expectations that the PBOC will continue to ease monetary policy”, Bloomberg’s economists Chang Shu and David Qu remarked.

Data out Saturday showed that while exploding pork prices continue to push up the CPI, factory deflation in China remains entrenched. As noted here, the PBoC will probably err on the side of fighting PPI deflation, especially given the domestic demand concerns that are clearly showing up in flagging imports and slumping auto sales. Indeed, Beijing cut the MLF rate by a token 5bps last week.

All of this points to a possible deceleration of GDP growth to below 6%, possibly as soon as Q4.

This week, the market will get the retail sales/IP/FAI trio for October. The data came in better than expected for September, but today’s credit growth figures do not appear to bode well.


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