Credit creation in China slowed dramatically last month, notable data out Friday showed.
The figures, although challenging to parse in real time, appeared to underscore pressing concerns about the trajectory of the world’s second largest economy, where policymakers’ efforts to bolster growth are complicated by competing priorities.
Aggregate financing was just 756 billion yuan in July, half the 1.4 trillion consensus expected, and among the weakest overall credit impulses in half a decade. The figure (below) uses a spliced-together series for aggregate financing. Technically, comparable data for the broad measure of credit is only available back to 2017.
New yuan loans were 679 billion last month, the lowest in years if you exclude April’s lockdown-driven plunge.
Although July’s figures probably reflect reduced urgency to satisfy lending targets at the beginning of a new quarter, last month’s numbers were markedly weaker than the comparable prints for July of 2021. They also stood in stark contrast to blockbuster tallies from the prior month, when aggregate financing set a June record as the economy attempted to rebound from virus containment measures which crippled activity in the second quarter.
For the casual observer, the important point is the macro context. China has struggled to stimulate domestic demand in the two years since the pandemic. The ever-present threat of new COVID lockdowns is a big part of the problem, but ongoing drag from sweeping property curbs and associated tumult is a grave threat all its own. Mortgage boycotts, the specter of large losses tied to property loans and a generalized sense of existential dread around the property sector, continue to weigh on sentiment both among borrowers and lenders.
Note that medium and long-term loans to households (so, mortgage lending) totaled 149 billion yuan last month. That was down 65% from June and 62% from July of 2021. At the same time, loans to corporates dropped sharply from the prior month, when corporate lending set a June record. Bill financing nearly quadrupled, suggesting banks were compelled to resort to short-term lending to offset a dearth of demand.
I’m reluctant to editorialize any further around the figures given the sheer amount of ambiguity involved, but I think it’s fair to suggest that a kind of paralysis may be setting in. Generally speaking, demand for credit appears wanting, and to the extent lenders are hesitant, they wouldn’t be blamed given a laundry list of legitimate concerns about the outlook.
China entered middle income status fairly recently. The jump from middle income to developed takes even very successful emerging market countries a long time. Add in the problems you cited and China is in for a long slog to advance- we are talking double digit years here.
We had to expect credit growth to fall, given the procrustean approach of Xi Jinping and the CCP in managing the ongoing property and banking troubles within the country. And, of course, there’s COVID and the lockdowns, which I understand to be necessary because the Chinese vaccine did not provide immunity for their people. Apparently, the only people in China who have any immunity are those who had the virus.
Not to mention, they’ve alienated the western markets they serve, which as we speak, quickly scurry to find other sources to manufacture consumer goods or explore onshoring possibilities. And COVID seems to be inspiring western customers of Chinese goods to search more rapidly for alternative sources of production for their goods than they otherwise would, had the pandemic not occurred.
It seems to me the current state of the Chinese economy is in an outright hurricane of likely negative outcomes. This is what happens when the political system directs everyone to align behind the Fearless Leader and Boris Badenov (of Rocky the Flying Squirrel fame). But there will be nothing cartoonish about the consequences this circumstance yields.
If the CCP has any brainpower to exercise in its party decision-making, they’ll get rid of Xi Jinping, who’s way too full of himself. They’ll change their policies vis-à-vis their people and initiate a grand re-opening of their economy to return to any level of confidence in the country’s leadership and direction. However, this is not likely to happen. And whatever actually happens will be very bad for the Chinese people.
Always appreciate your China contributions, Dave, hope all’s well and great to see you commenting after a bit…You know I agree about taking down BB, one can hope. I not too long ago read a Forbes(?) piece about the disillusionment from the higher Ed grads either being worked to miserable suffering degrees, or unable to find work. Have no idea how pronounced that my be. I’m also hoping all this combined with the Hong Kong takeover will spare Taiwan at least for the next generation or so.
Thanks, John. I appreciate your presence here too. But thanks to Heisenberg must also be noted. His understanding about the investment community, comments about US and international politics, his affection for factual accuracy, and his straightforward use of language enables our community.
I comment about the Chinese because the paths of their autocratic wishes since 1950 have changed dramatically and continue to do so. They had an entitled, but poorly informed world view in the 50s and 60s. In the 70s they were falling behind and they saw it plainly. Henry Kissinger saw the opportunity to influence their economic development in a more open and capitalistic way, which he hoped would also necessarily enable and encourage more political openness.
Xi and the CCP seem to think they can still control their society at a more minute level. Of course, they have cameras everywhere and minders minding everything. But at a macro level, their desire for control only quashes their broader capitalistic tendencies and yields unpleasant results for their economy and country. Not to mention, their pride in developing the vaccine neglected certain details, including the fact that it did not work.
All of this is happening by the choices of China’s leaders. It’s global-scale train-wreck occurring in slow-motion in real time.
I agree, and I think the threat of a major military action with another of the world’s big boys would make the populous somewhat hesitant. (It’s also against their biggest trading partner.)