Another Credit Binge Will Not Cure Economy
BMI View: The recent resurgence in credit aggregates has once again greased China's economic machinery, but it will not last. Not only would another prolonged credit binge further expose China's severe addiction to debt, but we also view the spike in non-traditional lending as a sign of enduring liquidity problems in the economy. As such, we maintain our stance that any third quarter growth bounce will prove fleeting, and that China's structural downturn will come back into focus in 2014.
China's recently-released credit aggregate numbers were truly staggering. Total social financing (TSF, the country's broadest measure of money supply) surged a remarkable 94.1% month-on-month (m-o-m) to CNY1.57trn, shattering the market expectations of CNY950bn by some distance. Put another way, China saw the equivalent of 2.8% of nominal GDP in net new credit injected into the economy in August. Another feature of the latest credit surge has been the dominance of non-traditional financing. Indeed, as the accompanying chart shows, traditional yuan loans as a share of total remain near historical lows.
What Do These Numbers Tell Us?
|Casting A Shadow|
|China - Total Social Financing & CNY Loans|