Readers will recall that there has been something a mystery in some components of the very steep slowdown in Chinese debt issuance over the last four months.
Most pointedly, local government borrowing, which accounts for a lot of infrastructure and property investment, cratered 80% year on year in the four months to April despite having quite generous quotas from Beijing. Now that strange downdraft may be easing:
- Leftover funds and the annual tax season saw less funds borrowed over April and May.
- Yields have been rising in the past week as local governments ramp up borrowing.
- Only 26% of local government quotas were filled in the first five months of the year. They are usually complete by October.
As noted many times, any local government ramp up here will help stabilise the downdraft coming from the three red lines policy attacking developer leverage and its fallout for commodities, especially bulks.
I do not expect it to be enough to prevent price falls but it will prevent Chinese demand from toppling off the cliff that was developing in the first five months of 2021.