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China’s Rapidly Expanding Credit Affects Global Markets

China’s Rapidly Expanding Credit Affects Global Markets

We again are seeing how rapidly expanding credit in China is spilling over into the global market. In reaction to its economy being slammed by covid-19, China like many countries has unleashed several massive stimulus programs to start things moving. Unfortunately for the Chinese people, they have also been dealing with other issues putting their system under stress. Not only is the trade war and a high level of political stress putting China to the test but it is in the midst of the worst flooding in decades and this is also adding to the pressure.
Since the outbreak of the pandemic, Chinese authorities have issued 4.75 trillion yuan ($683 billion) in local and national debt with most of that earmarked for infrastructure projects to boost construction. China is far from transparent and making it difficult to know what exactly is happening. This is also true when it comes to imports which are sometimes stored away rather than used. Speculation and projections of future use all play into this. Whether we are talking about grain prices, oil, or metal, China is a bigger user of commodities and the demand flowing from China affects prices. Factor into this the notion that China is big in projecting a positive narrative of economic growth and the spillover becomes clear.

An example of this can be seen as iron ore prices hit a six and a half year high on Thursday as the Chinese construction and manufacturing sector claims to be experienced levels of activity not seen for almost a decade. Fastmarkets MB reported that benchmark 62% Fe fines imported into Northern China were changing hands for $129.92 a tonne on Tuesday, up 2.1% on the day. That would be the highest level for the steel-making raw material since mid-January 2014 and put gains for 2020 to over 40%. 

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