Chinese credit creation exploded in January, a month that ended with large sectors of the country’s economy in lockdown mode, following the outbreak of the coronavirus.
New yuan loans were 3.34 trillion last month, a record, and higher than the 3.1 trillion consensus expected. The range from more than two-dozen economists was 1.8 trillion yuan to 4 trillion yuan.
But it was aggregate financing that really surged, as TSF printed 5.07 trillion yuan for January. That’s nearly 1 trillion yuan more than economists anticipated, and up nearly 3 trillion yuan from December.
It’s worth noting that the range from 21 economists polled was 3.9 trillion yuan to 5.15 trillion, so the number isn’t as astronomical as it might sound to the uninitiated. The amount of outstanding financing as of end-January was up 10.7% YoY, matching the pace from December. M2 growth last month was 8.4%, slower than the 8.6% the market was looking for.
Obviously, the January figures always have to be viewed in the context of the Lunar New Year, but these numbers are strong regardless. Shadow banking expanded for the first time in 10 months.
China completed a new round of easing on Thursday, slashing both loan prime rate tenors, with the one-year cut by 10bps to match an identical cut to the medium-term lending rate and OMO rates earlier this month.
And yet, to quote Jaws, we may need “a bigger boat”, because as Nomura’s Chief China Economist Ting Lu noted on Thursday, China’s Emerging Industries PMI – a momentum measure for the country’s high-tech industries – fell to just 29.9 in February.
That is a rather remarkable decline from 50.1 in January. Indeed, it’s the lowest print in history going back six years.
That’s obviously bad, and on the bank’s estimates, translates to an NBS manufacturing PMI of between 30 and 40 for February. Nomura slashed its estimate for Q1 growth in China to just 3%.
Meanwhile, China has seen two straight years of record onshore defaults, as authorities continue to experiment with allowing market-based discipline in the world’s second-largest bond market.
As I put it last week, all of this is a highly precarious spinning plates routine for policymakers in Beijing.
To mix circus metaphors, they’ve proven quite adept at keeping all the balls in the air over the last several years, but responding to the coronavirus epidemic without blowing bubbles or slamming the brakes on the de-leveraging effort, may well be their greatest tightrope act to date.