China’s ‘Pretty Evident’ Credit Slowdown May Bode Ill

According to various sourced reports, directives aimed at curtailing “bubble” risk presage the slowest Chinese credit growth since at least 2006.

Concerns about pockets of excess in the property market and various other manifestations of potentially perilous speculation prompted authorities in Beijing to instruct banks to maintain lending at around the same level versus 2020.

If banks adhere to the PBoC’s guidance, it could mean the pace of credit growth would slow to a 15-year nadir.

Read more: Credit Growth In China May Decelerate To 15-Year Low

As I attempted to emphasize in the linked article (above) that matters. Over the years, the global economic cycle has become somewhat synonymous with China’s credit impulse.

With that in mind, new yuan loans for March were 2.73 trillion, data out Monday showed. The range of forecasts for bank loans was 1.6 trillion to 3.02 trillion yuan, so the actual print came in near the top-end.

The figures kicked off a heavy data week for Beijing, which will deliver an update on trade, March activity and GDP.

Despite well-telegraphed tightening risk and the above-mentioned directive aimed at constraining credit growth, new yuan loans for the first quarter totaled 7.7 trillion. That’s a record, and easily topped the 7.1 trillion yuan total for Q1 2020.

And yet, aggregate financing missed expectations for March. TSF came in at 3.34 trillion yuan, against consensus of 3.7 trillion. M2 growth missed too, rising 9.4% YoY versus an expected 9.5%. The 12.3% YoY growth in total financing was the slowest in a year.

Note that the rationale for the PBoC’s directive around reining in credit creation was centered on a desire to curb real estate speculation.

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

That was evident in the credit numbers for March, according to analysts.

“Growth in trust loans – a main funding source to developers – slumped from -16.8% to -19%, the deepest contraction ever [while] undiscounted banker’s acceptance bills contracted by RMB230 billion in a month that usually saw big increases,” SocGen’s Michelle Lam and Wei Yao noted, adding that “it was rare to see undiscounted BAs and bill financing both falling by this magnitude in the same month.” They suggested it’s tied to the central bank’s efforts to clamp down on property speculation.

“I personally believe social financing is a more important gauge [and] if it continues to slide, the contraction in credit looks pretty evident,” Commerzbank’s Hao Zhou remarked.

Lam agreed. The latest data “indicate a quicker deceleration even than our cautious forecast, which, if [it] persist[s], would mean a greater downside risk to economic growth” in the second half, she said, cautioning that the 1pp drop in TSF growth “was sharper than any single-month deceleration seen during the previous deleveraging phase in 2017-18.”

All rosy predictions about US growth aside, modern macro can, in some respects anyway, be summed up as: “So goes China, so goes the world.”