The Chinese unrecovery is going swimmingly. Credit unrecovered late last week. Pantheon:
Credit is flowing, but where is it going?
- Chinese M2 growth rose to 11.1% y/y in May, from 10.5% in April. Consensus was 10.3%.
- Chinese M1 growth slowed to 4.6% y/y in May, from 5.1% in April. Consensus was 4.9%.
- Chinese M0 growth jumped to 13.5% y/y in May, from 11.4% in April. Consensus was 10.0%.
- Aggregate social financing rose to RMB 2,790B in May, from RMB 910B in April. Consensus was RMB 2030B
New yuan loans rose to RMB 1890B in May, from RMB 645B in April. Consensus was RMB 1,223B.
PBoC efforts to boost credit provision are evidently having some effect, aided by the gradual reopening of China’s economy. But stripped of base effects and seasonality, there is less of a change from April than the y/y numbers suggest. M2 growth rose to 1.1% m/m, seasonally adjusted, from 1.0% in April, M1 growth slowed to 0.4% m/m, from 0.5%, and M0 growth was unchanged at 1.7% m/m. In general, a widening gap between M2 and M1 growth suggests risk aversion, as time deposits swell, but demand deposits lag, indicating firms and households are sitting on new funds rather than readying to deploy them. Early deposits data suggest an increase in government balances – thanks to bond issuance – underpinned money supply growth, with corporate deposits unchanged month-on-month.
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Aggregate social financing (ASF) growth recovered slightly in May, rising to 10.5% y/y, from 10.2% in April. The biggest driver was another acceleration in government bond issuance, to 17.5% y/y, from 16.9%, though bank lending finally broke its losing streak, accelerating for the first time since May 2021, to 10.9% y/y from 10.7% in April. Corporate bond issuance also accelerated. The increase in bank lending is the highlight, as it suggests a turning point may finally have been reached. The question is, where did those loans go?
Loans to households slowed again in May, to 8.3% y/y, from 8.9% in April, so we should not expect a turnaround in property on the back of these numbers – though there was a small increase month-on-month, the first tentative suggestion that a floor may be in sight. But given the noise introduced by lockdowns and reopening, we prefer to wait before making a call. Instead, loans to corporates and other sectors accelerated, reaching 12.4% y/y growth, from 11.8% in April, the highest rate since December 2020. But short term and longer term lending to corporates only both slowed in May. What this suggests is that “other sectors” benefitted from the increased lending. We are inclined to suspect lending to governments is the culprit, whether directly or through LGFVs, which speaks to the financial pressures local governments are under as Beijing leans on them to provide relief to local business, and to finance zero-Covid efforts, amidst falling tax revenues.
Our first chart shows the key money aggregates; note the divergence between M1 and M2 growth, suggesting monetary easing is pushing on a string. Our second chart shows the available breakdown of lending data, with an increase in headline lending not matched by an increase in lending to households or corporates.
The economic and property unrecovery is on track too as COVID stalks all:
And lockdowns resume:
China is starting to re-impose Covid-19 restrictions just weeks after major easing in key cities, raising concern the country may once again employ strict lockdowns to control its outbreak.
Beijing reported 51 new local cases for Sunday, after having single digit cases on most days last week. The city’s local government said an outbreak linked to a popular bar is proving more difficult to control than previous clusters, in a weekend that saw mass testing and rising infections both in the capital and Shanghai. A total of 37 cases were reported for Shanghai, with five new cases detected in the community.
Authorities delayed the reopening for most schools in Beijing that was planned for Monday, while most districts in Shanghai suspended dine-in services at restaurants. China reported 143 cases nationwide for Sunday as the number of new infections crept up. Daily cases fell below 100 last month for the first time since early March after strict curbs.
Property isn’t even unrecovering:
The wider economy is unrecovering:
The only bright spot is bridges to nowhere:
Looks a lot like Japanification to me. Once we get past our little inflation problem in the west, China is going to export another tsunami of deflation.