Chinese credit rebound fizzles

China’s new yuan loans for November were out last night and were weaker than expected by the market but spot on for me. Total social financing was 2.6tr yuan:

That was up 12% year on year and the 3MMA flopped into the positive:

M2 pulled back to 8.5%

The flow of new loans was down 12.6% year to date:

And the stock of credit managed a tiny bump to 10.1%

Goldman’s take is the rebound is even weaker than it appears:

Among major TSF components, loan extension slowed despite PBOC’s guidance on “normalizing credit support to the property sector”. After our adjustment for seasonality, corporate short-term loan growth slowed to 3.4% mom annualized from 5.3% in October and corporate mid-to-long term loan growth decelerated to 5.4%mom annualized from 12.0% in October. Corporate bill financing picked up sharply by 47.8% annualized mom, accelerating from +27.7% in October, suggesting banks tried to increase lending amid weak loan demand. On loans to household, short-term loan growth moderated to 7.4% mom annualized (vs. 9.1% in October), while household mid-to-long term loan (mostly mortgages) growth accelerated further to 14.3% mom annualized (vs. 13.1% in October). Government bond and corporate bond issuance improved.

M2 growth surprised to the downside. Among major M2 drivers, fiscal deposits fell sharply by 0.7 trillion in November (vs. -0.2 trillion in November last year), turning more supportive to M2 growth. That said, slower loan growth still weighed on overall M2 growth.

November credit data still pointed to weak credit demand – bill financing accelerated materially while corporate medium to long term loans remained weak. The acceleration of household medium to long term loans probably reflected the extension of mortgages delayed in previous months. PBOC announced 50bpsRRR cut on Monday (effective December 15th), aiming to lower funding cost for banks and provide more support to the real economy.

My take for what is coming is captured by the following chart:

The credit impulse will rebound to zero which will happen almost by default as last year’s deceleration drops out.

In other words, an L-shaped recovery for credit unless or until policymakers panic owing to stalled construction.

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