Global Deflation Alert: Chinese Credit Creation Tumbles To 27 Month Low
At the end of November, we showed a troubling observation for China – and global – macro watchers from Axiom’s Gordon Johnson: for the first time ever, record Chinese credit creation had failed to stimulate the economy, and in fact the exact opposite appeared to be unfolding – economic growth is slowing across a number of data points despite massive new credit injected into the economy over the past year.
In economic terms, this meant that China’s credit impulse had hit rock bottom, and was perhaps at its lowest level ever, something UBS hinted at over the summer when it showed that no matter how much credit China creates, it can no longer keep the first derivative, i.e. impulse, surging at is had in the past despite record amounts of nominal debt created. Quite the contrary.
And while one can debate the definition of credit impulse, and its impact on the global economy, one thing is clear: China’s credit creation – the growth dynamo of the entire world – is rapidly slowing. We got the latest confirmation of this earlier this week, before last night’s battery of economic data which painted a very mixed picture of the Chinese economy, with retail sales missing, while IP and CapEx barely met expectations…
… when the PBOC reported November new loans of Rmb1.12Trillion and Total Social Financial of Rmb1.6Trillion. While on the surface both numbers appeared solid, beating consensus, a careful read between the lines showed some very troubling details which confirmed that not only was November not the upward “turning point” for monetary policy some expected it to be, worse, China’s credit slowdown was accelerating.
For one, adjusting for municipal bonds and equity raising, as Deutsche Bank did, showed that system credit growth slowed further to 14.4% yoy from 14.9% the prior month.
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