So much for China's mission to gradually deleverage in 2013. Despite two near-taper episodes, one in June and one in December, which send short-term lending rates soaring, the PBOC party line has been that the Chinese banking system is slowly but surely issuing less debt as it already has an epic debt overhang, much of which is turning sour at an accelerated pace. One needs to look nowhere else than the country's declining GDP to visualize the declining marginal utility of every dollar in newly credit loans. And yet following last night's release of Chinese lending data we found that in 2013, the broadest measure of Chinese credit issuance, the so-called aggregated financing, just hit a record high of 17.3 trillion. So much for the deleveraging myth.
Of course, what is going on in China is more nuanced. Because while official lending indeed dipped, falling 23% in December to RMB 483 billion from 625 billion in November, it was the non-bank lending channel which made up for the difference. As a result Total Social Financing remained flat in December at RMB 1,230 billion. And it was the TSF aggregate that roared to a new all time high in 2013, which simply means that as the central bank and government pretends to clamp down on official lending channels, surplus credit is being released through unofficial pathways, where it is even more difficult to track and quantify.
Summarizing China's full year credit numbers via BofA: YoY growth of outstanding TSF, bank loans and M2 moderated to 18.8%, 14.1% and 13.6% respectively in December from 19.5%, 14.2% and 14.2% in November. New bank loans rose 8% in 2013 from the previous year to 8.89 trillion yuan, the central bank said.
Broken down by component:
- New entrusted loans and trusted loans remained quite resilient in December at RMB276bn and RMB110bn respectively compared to RMB270bn and RMB102bn in November.
- New corporate bond dropped to RMB24bn in December from RMB138bn in November. We note that government and coporates delayed their bond issuance or scaled down the size due to the tightened interbank liquidity and jump in interbank rates.
- New FX loan rebounded to RMB51bn in December from RMB12bn in November. It is appealing to corporates to borrow FX due to continued RMB appreciation and rising interest rates in China.
- Non-discounted bankers acceptance (BA) jumped by RMB168bn in December after staying sluggish for 3 months previously. One possible reason is that corporates used BA to avoid the too high short-term rates. We think the monthly numbers are particularly volatile, and there is no need to overlyinterpret it (This is also the reason why we exclude it from calculating our revised TSF growth).
And the punchline: FX reserves rose rose by US$157bn in 4Q to US$3,820bn at end-2013. In comparison, it was up by US$163bn in 3Q and US$54bn in 2Q13. For the full year of 2013, FX reserves jumped a record high of US$508bn, compared to US$130bn in 2012 and US$334bn in 2011. An initial estimate suggests that "unexplained FX inflows" could fall to about US$22bn in 4Q from US$65bn in 3Q.
Just what China will do (is doing) with this record FX hoard, especially since we know it is barely buying US Treasury paper, is anyone's guess.
Finally, where China's (official) credit stock to GDP is projected to grow, here is a chart from Goldman that attempts to forecast just this.