Following the softer October data we saw a strong rebound in credit during November. Total social financing was up RMB2,610bn (mkt RMB2,700bn) while new loan growth came in at RMB1.270bn (mkt 1.555bn). This bounce might have been a little less than mkt expectations, but it fits with trend and comes at a time when lenders are caught between managing the risks from property loans and central demands to extend more credit to help China manage the Evergrande led bump in the road.
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Another relatively solid month on the credit side. China’s August new yuan loans came in at CNY1.22trn vs. the CNY1.3trn median forecast but total social financing hit CNY2.96trn (mkt 2.75trn) amid a rebound in corporate bond issuance and solid local government financing numbers. Money supply meanwhile looks soft, M2 at 8.1% (mkt 8.4%) and M1 slowing to 4.2%, the weakest reading since February last year.
While China’s May money supply and credit numbers have come in broadly in line with expectations — M2 8.3% vs. 8.1%, total social financing +1.92trn vs. +2.00trn median forecast and new loan growth +1.50trn vs +1.41bn survey — there are a number of interesting developments worth noting.
Israel Ceasefire in Gaza fairly predictable, the assault has gone on for a sufficiently long time to serve most political objectives of the warring parties. As such it is a sustainable halt to hostilities, repeating the cycle we’ve seen numerous times in the past. There are two fights going on here, on is technological and the other political. Israel have struck Hamas very harshly, depleting its stockpiles and damaging its infrastructure. It has also demonstrated its technological capabilities to defend Israel from rocket attacks (for the most part) — Hamas were not able to overwhelm Iron Dome despite their best efforts.
The latest batch of Google mobility data, which take us up to 13th March, hints at a slight slowdown in the rate of improvement, amid some setbacks in some of the individual countries we survey. But this looks like ebb and flow and doesn’t detract from the underlying trend, which remains one of improvement.
February credit growth inevitably slowed from January due to the Chinese New Year (CNY) holiday. But despite that the figures look pretty robust, particularly new loans, which came in at CNY1,360bn, well above median expectations of CNY950bn. That left total social financing growth at CNY1,710bn, more than double the level we saw last year. Jan-Feb cumulatively is up 16.1% from where it was in 2020 and most of this looks to be private sector driven with local government bond issuance down yoy.
January’s Chinese credit numbers were rather robust and some way ahead of expectations. But this is the pre-Chinese New Year period where things can be a little less predictable and should be really taken together with February’s readings. And then we’ll have the added problems of adjusting for the impact of Covid last year.
As we move into 2021, we are getting a clearer picture into the extent of the slowdown in economic activity that the resurgent Coronavirus has triggered. Although the Google mobility indices were already indicating a sharp deterioration, the scale of the decline reported through to the turn of the year was exaggerated by holiday effects, as we noted last time. Data through to the 8th of January, which was released yesterday, gives us a clearer picture of how things stand. And while it is not quite as bleak as over the Christmas and New Year period, the data still paints a fairly poor picture of global economic health.
December saw a further solid increase in Chinese FX reserves, the headline holdings number rising US$38.03bn m/m to US$3,216bn. Again more than half of the rise can be attributed to valuation adjustments as the US dollar continued to depreciate against the balance of the PBoC’s reserve holdings.
The re-acceleration of Covid infections has hit mobility hard over the past two weeks. Although there are clearly seasonal factors at work (which the Google data series do not account for), we’ve clearly seen a pronounced deterioration in both mobility and economic activity above and beyond what could have been normally expected. This has been concentrated in Europe, with a particularly severe drop in Germany where our economic activity measure suggests things are even worse than at the peak of the crisis last April. Italy and the UK have also registered steep falls, while Spain and France have seen more modest drops.
Chinese credit growth rebounded after the weaker October numbers. Yuan loans came in at CHY1,430bn while total social financing hit CNY2,130bn. Money supply also ticked up a touch, M3 at 10.7% from 10.5%. Although outstanding loan growth eased a touch to 12.8% from 12.9% the monthly rise in TSF still exceeds the increase we saw last year, maintaining the leveraging trend we’ve seen since Covid hit. Indeed, ytd overall debt measured by the data has risen by 26% of GDP to 280%.
China recorded a further reserves build during November, total holdings rising by US$50.51bn to US$3,718bn. Nearly half of the increase can be accounted for by FX effects, specifically the effect of a weakening of the dollar compared to the other components of the reserves basket.
We’ve seen a further downturn in the European mobility, as national lockdowns continue to bite, with the UK, France and Italy all falling significantly over the past seven days. Spain and Germany have been steadier, helped by the fact that they’ve been able to bend the Covid infection curve, with new cases rolling over and doing so from lower infection levels. Looking at things globally the picture looks more balanced, European weakness offset by ongoing improvements across Asia and in the larger emerging markets.
Chinese credit growth might look to have eased back in October, with Total Social Financing coming in at CNY1,420bn versus CNY3,480bn in the prior month and new yuan loans a modest CNY689.8bn versus CNY1,900bn in September, but October is typically the weakest month of the year for credit extension. Compared to a year ago credit growth was significantly up
Another strong credit number, Chinese total social financing (TSF) rising CNY3.48trn in September (mkt 3.15trn) while new yuan loans grew CNY1.9trn (est. 1.7trn). That leaves overall credit growth steady at +13% yoy. But that understates this impact. Indeed, on a 12m rolling basis credit issuance is up 37.8% or 30.4% excluding shadow banking. This is piling on more leverage to an over-leveraged economy, TSF stock now above 280% of GDP and growing fast, amplified by the GDP hit from Covid.
China’s September reserve numbers showed a modest decline to US$3.143trn from US$3.165trn in August. And nearly all of this can be accounted for by FX valuation adjustments. Given the large trade and current account surplus China is currently running though this still implies ongoing outflows of capital, with our rough calculations pointing to an annualised outflow of US$200bn.
Slight increase in Chinese FX reserves in August, the $10.2bn m/m gain taking total holdings to $3.165trn. But the build should have been far greater based on exchange rate changes and balance of payment flows. Indeed, adjusting for FX valuation changes reserves actually fell again slightly (for the third consecutive month).
July credit data showed a deceleration of flow month on month, RMB loans issued dropping to RMB1,020bn from 1,903bn the prior month while total social financing came in at RMB1,690bn (RMB3,432bn prev). Credit flow remains strong compared to last year but with real economic activity picking up clearly the authorities have stepped back from the credit driven boost delivered over the past few months.
While credit extension matched consensus estimates in June the overall picture is still strong. New loans growth is running at +13.2% y/y, well in excess of the current rate of nominal GDP growth, while the total social financing figures hit CNY3.42trn, underpinned by rising local government bond financing, which lurks in the “other” category. Year-to-date total social financing is now at 80% of the full-year 2019 numbers,
Chinese credit expansion continues at pace, total social financing hitting CHY3.19trn in May up from CNY1.71trn a year earlier. The jump has been predominately driven by the ‘other’ section which is largely local government bond financing, which suggests the authorities have reverted to traditional investment driven support to support the Covid-economy.
