Chinese Monetary Tightening Accelerates In May As Loans, M2 Drop

Tyler Durden's picture

Goldman Sachs summarizes the just released monetary update from China, which some expected could announce a formal rate hike over the weekend.

Key takeaways:

  • May monetary data confirms our understanding that there was no loosening of monetary policy in May.
  • We believe policy makers will maintain a tight policy stance at least for another month from now.
  • We expect a normalization of monetary policy (not an aggressive loosening as in 2H2010) in 2H2011 when inflation is expected to moderate.

What happened:

  • Commercial banks extended Rmb551.6 billion in loans in May (market consensus: Rmb650 billion), down from Rmb739.6 billion in April. Outstanding CNY loans grew by 17.1% yoy in May (our forecast: 17.1% yoy, market consensus: 17.2% yoy), down from 17.5% yoy in April. The mom; s.a. ann. growth rose to 16.7%, up from 10.6% in April.
  • M2 growth came in at 15.1% yoy (market consensus: 15.5% yoy), down from 15.3% yoy in April. The mom; s.a. ann. growth rose to 14.3%, up from 3.6% in April.

Our views:

  • May monetary data confirm our belief that there was no loosening of monetary policy in May which put continued pressure on domestic demand growth.
  • We believe policy makers will maintain a tight policy stance at least for another month from now as inflationary concerns remain high while there have been some signs of an incremental rebound in activity growth compared with April as suggested by the May PMI data.
  • We expect a normalization of monetary policy in 2H2011 when inflation is expected to moderate (by normalization we mainly mean incrementally less strict controls on the quantity of money and credit supplied instead of an aggressive loosening as in 2H2010 or outright stimulus by cutting benchmark interest rates).

Some charts and tables:

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Mec-sick-o's picture

As US and EU economies slow down into recession, don't expect any further tightening.

Ahmeexnal's picture

Who's gonna buy all those chinese trinkets? Hu that's who!

Ahmeexnal's picture

*meeeeeep* wrong answer.

When TSHTF the BRICs will be buying up whole cities in europe. 

Not only the buildings/infrastructure, but the slaves that will be bundled with them too.

China will be left holding bags full of notgeld EURO.  They'll need them for heating and cooking as oil will be priced in GOLD.

Mec-sick-o's picture

Not so fast.

China has several important oil/commodities agreements in local currencies.

EURO seems the lesser evil between USD and JPY.

EURO will remain for a while even if Greece takes the door on the left.

Yen Cross's picture

  That is right in line with the Fed tightening.  The rate differential would off set Chinese holdings.

MarketTruth's picture

Chinese banks reserves have been raised to 22% (5:1) whereas USA banks can have a mere 2% (50:1). So if a USA bank loses 3% on their mark to Unicorn Make-Believe they are insolvent. Looking at the FDIC' situation/numbers when they close a bank it is painfully obvious that many USA banks are committing outright fraud if one was to use common sense accounting.

Yen Cross's picture

 The Pboc requirement on a a RATE requirement every week!

tom's picture

Would be a very big deal if Chinese m2 actually dropped. But Goldman is saying here that the growth rate re-accelerated after an April slowdown.

disabledvet's picture

Again "housing, housing, housing."  If that's a bubble and it sure has every marker "the Chinese are dong exactly what the Japanese did in the 80's."  The Shanghai stock market is to me screaming "property correction"--and with the HKDollar still pegged to the greenback plus an overtly inflationary "renminbi" and --what?  not go hog wild in property speculation?  "didn't have any problems in 2008" right? i say BULLSHIT.  The Chinese are buying every commodity on the planet just as they are tightening?  CRAZY!  Just how much is actually made in China anyways?  I say "of the non-entry level stuff damn near zero."  It's a bidder's market until it's not and so far "everyone is piling into traditional safe havens" like Treasuries and energy.  I still like "non-mainland East Asia" in the form of Indonesia, South-east Asia excluding the 'nam, Hong Kong, Taiwan--but i'm struggling with Korea because of the nuclear reactor issues and Japan for the same far too literal (Fukushima) reason.  Unless i see oil start taking some serious tumbles this week "i'm waiting for a dip of consequence."  is anyone arguing Europe is "on the same sheet of music in dealing with its crisis?"  Of course not.  And Saudi Arabia?  "They're going to bankroll something far different than what they normally would" yes, yes?

jaffi's picture

It's kinda like skiing Mt. Hutt (NZ) double-black diamond: No trees and lots of moguls- and hell of a lot of paper.  The graph says it all; China is due for a deep recession.  I guess we'll have to see how they handle it, whether they stimulate, or let the unwinding/liquidation equilibrate their price/capital structure.  I am betting on the latter.  If they don't they are friggin' idiots.  In either case, their banking structure and capital structure is more apt to handle a deep recession than that of Japan in the 90s or the US this past 20 years (esp. today).  

slewie the pi-rat's picture

" 2H2011 when inflation is expected to moderate."
transitory, comrade-BiCheZ!

Yen Cross's picture

 Finnally Slewie. Inflection time.

bankonzhongguo's picture

GS summarizes Chinese data?

There has got to be a new word in the human vocabulary for that new dimension of opaque context.


There comes a point when you just don't believe a word your spouse says anymore. 

At that point, your best friend drives you to the attorney's office.

We would love to live in a world where you could actually believe something (anything) you heard on the street, but ...

This is beyond crying wolf.


Yen Cross's picture

 Dis- abled and Tom. You're two sides in a perfect story.


               Your Multiple Wisdoms, are appreciated.      Yen Cross.

phungus_mungus's picture

All of this might mean something if we knew for sure the Chinese were actually telling the truth about their economy...

pcrs's picture

how is 15% YoY growth monetary tightening?

jaffi's picture

It isn't, really.  The renminbi has been tied to the dollar for many years, and it has inflated as much as the US has, so it would make sense to adjust your figures downward to about 5-8%.  Yes, China has been growing, as it will probably continue to do such, but China is in for a major correction.  The fact is that Chinese growth (or, any nation's growth) is today fueled by injections of liquidity, which bid up demand beyond their clearing price within their market, as well as global markets.  

The Chinese tightenings have been marginal (far greater than Western standards), but they have been tightening (they're trying to avoid a recession by not tightening too much).  However, in the end, the price structure of the Chinese economy must necessarily correct, and this means a recession.  If they stimulate, they just may be able to get over that hump due to their position, but if they let prices equilibrate, then the US and Europe don't have much chance to fight the Chinese economy.

To be quite honest, if we don't get our chit straight, this is the stuff that wars are made of.  And, I don't mean this bullshit in the Gulf (of which I am a veteran), with Hadjis running around in flipflops and small arms,  I am talking a war that has more than one national military force involved.  

SlipStitchPass's picture

 I think it has been shown that the currency black market and the shadow banking market in China have also been cranking along so China may not be able to let it correct. It may be a more violent event. Not sure this is good news for the USA but if we get a period of time where the metals get killed I will be happy. It would be nice to go be able to double holdings over the period of a year or two, although it would be painfull to look at the balance sheet.


A Man without Qualities's picture

If inflation is 10% and growth 10%, then 15% money growth is actually tightening, as bizarre as it may seem.

PulauHantu29's picture

Just wait until 300,000,000 million apartment owners there try to sell their empty apartments all at once.

It will make the subprime disaster look like a cake walk.