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China Changes Definition Of Aggregate Financing To Disguise Sharp Credit Slowdown

October 17, 2018

China Changes Definition Of Aggregate Financing To Disguise Sharp Credit Slowdown

With investor attention increasingly focused on China’s credit pipeline to see if the recent crackdown on shadow lending has unlocked other sources of debt in a country where growth is always and only a credit phenomenon, and where both the housing and auto sectors are suddenly reeling, overnight’s latest credit data from the PBOC was closely scrutinized… and left China watchers with a very bitter taste.

What it showed was that traditional new RMB loans rose to RMB1,380bn in September, largely as expected (exp RMB1,360bn) from RMB1,280bn in August, with growth of outstanding loans unchanged at 13.2% Y/Y and up from 12.7% a year ago. New loans to the corporate sector rose to RMB677bn from RMB613bn in August, in which medium- to long-term loans rose to RMB380bn from RMB343bn in August. New loans to the household sector rose slightly to RMB754bn in September from RMB701bn in August, and the long-term loan component (mostly mortgage loans) remained largely flat at RMB431bn (August: RMB442bn). New loans to non-bank financial institutions were -RMB60bn in September versus -RMB44bn in August (average September level: RMB13bn). Also of note, M2 growth rose by 0.1% to 8.3% Y/Y in September, in line with market expectations, however as Nomura writes in a note this morning, monetary aggregate growth is no longer as important to the central bank’s policy making as it once was, and Beijing is focusing more on interbank liquidity conditions, aggregate financing and investment.

Where the data was especially interesting, however, was in the broader Total Social Financing category, which on the surface came in well stronger than expected printing at RMB2,205bn in September from RMB1,929bn in August, above the $1,550bn estimate, and the strongest month since January.

…click on the above link to read the rest of the article…

Equity Markets and Credit Contraction

September 26, 2015

Equity Markets and Credit Contraction

There is one class of money that is constantly being created and destroyed, and that is bank credit.

Bank credit is created when a bank lends money to a customer; it becomes money because the customer draws down this credit to deposit in other bank accounts and to pay creditors. It is not money that is created by a central bank; it is money that is created out of thin air by commercial banks to lend. Its contraction comes about when it is repaid, or if a customer defaults.

The recent sharp fall in equity markets is leading to two levels of contraction of bank credit. Brokers’ loans to speculating investors are being unwound from record levels, notably in China and also in the US where in July they hit an all-time record of $487bn. Then there is the secondary effect, likely to kick in if there are further falls in equity prices, when equities held as loan collateral are liquidated. This is when falling stock prices can be so destructive of bank credit, and as the US economist Irving Fisher warned in 1933, a wider cycle of collateral liquidation can ensue leading to economic depression.

Fear of an escalating debt liquidation cycle is always a major concern for central bankers, so ensuring the secondary effect described above does not occur is their ultimate priority. Macroeconomic policy is centred on ensuring that bank credit grows continually, so since the Lehman crisis any tendency for bank credit to contract has been offset by central banks creating money. The bald fact that equity markets have now lost upside momentum and appear to be at risk of a self-feeding collapse will be viewed by central bankers with increasing alarm.

– See more at: http://www.cobdencentre.org/2015/09/equity-markets-and-credit-contraction/#sthash.7O1UI6TY.dpuf

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