Did the Chinese credit cycle just peak?

There is a goodly chance that it did. Last night’s PBOC new yuan loans came in at 2.13tr total social financing with banks at 1.43 tr:

Non-bank lending has started to fall away as local government budgets tighten:

New loans flow came off hard year on year:

Rolling annual stock is still strong:

But broad credit year on year peaked at 13.8% growth:

The credit impulse is still strong:

I expect China to tighten materially as the global economy recovers. We may have just begun it. Via the FT:

Chinese government entities responsible for funding hundreds of billions of dollars in infrastructure projects are struggling to raise cash after a series of defaults by state groups rocked the country’s credit markets.

Executives from several local government finance vehicles (LGFVs) have told the Financial Times that they have abandoned bond sales or loan applications after debt-saddled state-owned enterprises, led by Yongcheng Coal & Electricity Holding Group, defaulted in November. Other LGFVs are paying much higher rates of interest to borrow.

The credit crunch facing LGFVs, which are responsible for funnelling cash to China’s local governments, has raised concerns that defaults at state-owned enterprises are spilling over into other parts of an economy whose recovery from coronavirus has been supported by infrastructure spending.

“LGFVs are one of the most important tools Chinese local governments can employ to achieve their policy goals such as boosting investment and creating jobs,” said Dan Wang, chief economist at Hang Seng Bank China. “Numerous projects could be stalled if LGFVs lose access to credit.”

It takes growth about six months to follow credit lower.  If so, metals prices are closer to the top than they are to the bottom.

David Llewellyn-Smith
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