The Mother Of All Bubbles: Lending In China Hits New Low In September
Some ominous moves out of the Hang Send and the Shanghai Composite overnight which may have everything to do with the latest piece from Caijing, which notes that according to banking sources September lending by China's four largest banks was the lowest so far this year at a paltry 110 billion yuan (from 166 billion in August), while the Bank of China disbursed a miserly 3 billion down from 72.2 billion in August.
September lending fell as the bank had achieved the goals of expanding its loan portfolio, adjusting lending structure and boosting market share, said the analysts, who declined to be identified ahead of the official release of statistics by the People's Bank of China.
New lending extended by the four biggest banks roughly accounts for half of the total by China's commercial banks.
China Construction Bank (SSE. 601939; HKEX.0939) extended 44 billion yuan worth of new loans in the month, up from the 34.7 billion yuan dealt out in August, bringing the total for the first nine months to 842.7 billion yuan.
Industrial and Commercial Bank of China (SSE.601398; HKEX.0398), the world's largest commercial bank by market value, extended over 30 billion yuan in new loans in September, compared with the 38.1 billion yuan in August. ICBC has set a full-year lending target of 1 trillion yuan, and extended a total of 925.2 billion yuan in the first nine months.
Agricultural Bank of China also lent more than 30 billion yuan in the month, up from 20.8 billion yuan in August. The bank has not set a full-year loan target but said it will determine its lending scale in response to demand and economic conditions. New loans for the first nine months stood at 872.6 billion yuan.
We have discussed previously the goal-seek formula that China employs in order to hit its magical 8% GDP growth target every year, which is driven by feeding capital disbursements without any real regard for whether the excess loan liquidity goes into washing machines or buying Steve Wynn's latest IPO at nosebleed valuations.
Yet the September decline was doubly ominous, as it comes in a time when banks traditionally let the spigot on full blast:
Chinese banks tend to rush lending towards the end of a month or quarter in order to boost performance and expand market share. They lent a record 1.8 trillion yuan at the end of the first quarter, followed by 1.53 trillion at the end of the first half, Caijing reported earlier.
The lending surges, which far exceeded the actual demand for credit, led to the China Banking Regulatory Commission issuing a series of warnings to the banks, the result of which was a decline in new loans in September, the analysts said.
Market operations conducted by the central bank to adjust liquidity, coupled with an investigation into banks' implementation of macro-economic policies by the National Audit Office that began in September, also put pressure on banks to slow new loan approvals, according to the analysts.
New lending is expected to slow steadily in the fourth quarter, they added.
Many have said that the Chinese bubble is deflating. Several headfakes in the CSI, at one point a 20% decline into recession territory, seemed to have given China bears the ammunition they thought they needed. Yet these have all been pretty much just that - transitory headfake movements whose downward pattern has not sustained. And the broken pattern will continue so long as Ben and his covert-ops Chinese counterparts (good luck trying to pass HR 1207 in China) continue flooding markets with increasingly worthless pieces of paper (keep in mind, currency devaluations are relative phenomena).