Late last month, I spent a few minutes editorializing around what SocGen’s Albert Edwards dubbed macro’s “most important chart.”

The visual plotted China’s credit impulse (i.e., the change in Chinese credit growth as a share of GDP) with S&P 500 12-month returns, lagged by a year.

As it turns out, the two series map pretty well, and the fit’s even stronger when you replace YoY US equity returns with EPS revisions breadth.

There’s the chart again. The explanation for the fit’s simple. As Edwards wrote, “Chinese credit growth correlates (and causes) much of what is cyclical.” Revisions breadth’s a cyclical indicator, and stock prices are a function of earnings expectations.

The context for this discussion is, of course, lackluster credit growth in China, where the Party’s failed miserably to resuscitate domestic demand, relying instead on exports to prop up GDP.

With that in mind, the latest credit data out of Beijing, released on Monday, was miserable. Specifically, new yuan loans were just CNY60 billion against expectations for CNY400 billion.

As the figure below reminds you, new yuan loans contracted in July for the second time in four months, which is to say Chinese were net repayers of debt (small white arrow). July’s decline was a record and only the third decline on record.

To describe Monday’s print (the CNY60 billion blip shaded with the grey bar) as disappointing would be an understatement. If you exclude the outright declines on this key measure of net lending to the real economy, August’s reading was the worst in at least half a dozen years.

The red line in the figure, plotted on the right axis, shows the growth rate of the outstanding loan stock. It slipped below 5% in August to a new record low. That metric was 13% at the end of 2020.

Suffice to say credit demand among households and corporates remains very, very weak in China. Note that new yuan loans were nearly CNY600 billion in August of last year — so, 10 times higher than August of 2026. YTD, new loans are down about 22%.

This underscores (again) the extent to which the Party’s pushing on a string when it does things like recapitalize state lenders for the nth time in five years. The problem isn’t the cost of money, nor the availability of loans. The problem is negligible (read: nonexistent) demand for credit.

China has a balance sheet recession on its hands, and the only reason we’re not having the deflation discussion every month is because the impact of the war ignited factory-gate prices, which had been mired in a years-long run of negative YoY growth.

Make no mistake: This matters, and not just because of some maybe-connection to US analyst optimism and thereby stock returns. The longer it takes for Xi to revive Chinese consumption, the harder he’ll need to lean into exports. And as discussed at some length here and, more recently, here, the world simply can’t take much more in the way of China’s “winning” ways on trade.