Credit Growth In China May Decelerate To 15-Year Low

As it turns out, the PBoC didn’t just instruct banks to rein in lending for a quarter, as FT suggested last week. Rather, Beijing told banks to “curtail loan growth for the rest of this year,” Bloomberg reported on Tuesday.

Lending should be maintained at around the same level versus 2020, the PBoC told banks at a March 22 meeting, the ubiquitous people familiar with the matter said.

Over the weekend, I explained why this is notable, in case it’s not obvious. Over the years, the global economic cycle has become somewhat synonymous with China’s credit impulse. So, shifts in Beijing’s stance on credit provision are generally not welcome if they’re seen as leaning in favor of tighter policy.

Read more: Fearing Property Bubble, China ‘Instructs’ Banks To Slow Credit Supply

But Bloomberg’s reporting on Tuesday was incremental for a couple of reasons.

First, it gives you a window into how adept Beijing is at describing potentially consequential policy shifts in terms that sound completely mundane. Bloomberg said comments from its sources “give further detail to what the central bank stated publicly after the meeting, when it said it asked representatives of 24 major banks to keep loan growth stable and reasonable.”

“Stable and reasonable” is a phrase right out of the PBoC’s deep Rolodex of nebulous descriptors. They use it (or something like it) so often to describe monetary policy and credit creation that most market participants tend to dismiss such remarks as just another boilerplate statement reiterating some equally vague directive handed down from on high.

But sometimes, it’s meaningful. For example, the figure (below) shows that if banks do adhere to the PBoC’s guidance (and they will because… well, because it’s China), it will mean the pace of credit growth would slow to a 15-year nadir.

The PBoC didn’t respond to comment requests from the media (which they almost never do) and analysts said this isn’t necessarily material, as it’s just more evidence to support what everyone already knows — namely that Beijing is keen to manage potential risks in the property sector. A little knock-on de-rating in the likes of Kweichow Moutai would probably be welcome too.

The second reason Tuesday’s reporting is notable at the margins is that a directive to curtail lending and otherwise stymie the credit impulse pretty clearly indicates that Beijing is back to taking the de-leveraging push seriously just a year on from the worst global public health crisis in more than a century.

De-leveraging in China is a lot like “infrastructure week” in the US — it’s purportedly always happening, but it never seems to really pan out.

Well, with the economy now stabilizing and Donald Trump’s trade war relegated to the dustbin of history (Joe Biden’s approach may be just as adversarial, but it won’t be as mercurial, which is what counts if you’re trying to centrally plan something) Beijing appears to believe it has a green light to rekindle the de-risking initiative. Meanwhile, the US looks poised to finally deliver on infrastructure. There’s some irony in all of this.