China Loan Creation Tumbles, Lowest Credit Growth In 20 Months

Tyler Durden's picture

One month ago, when we last looked at the incredible amount of Chinese new loan issuance, a topic which even the mainstream media is slowly starting to circle in on as the primary source of hot money flow creation in the world, we found the highest loan notional issued by the country's semi-sovereign banks since 2009, and the largest one-month ever monthly total in the largest aggregated, Total Social Financial, series, which rose by an unprecedented CNY2.6 trillion, or over $400 billion in one month! That was just before the tremors surrounding first the potential defaults of several Chinese shadow-banking Trusts, and certainly before the first official corporate bond default which took place last week.

Overnight, the PBOC released its latest, February, loan data. As expected, it reveals something else entirely.

In the month in which there were pervasive fears that China would let one or more Trusts go bankrupt (a fear which was unfounded as China did bail out two shadow trusts in February, only to finally allow a corporate bond default last week), loan creation ground if not to a halt, then certainly was significantly impacted, and its collapse may explain the abysmal February trade data as well, which far more than merely indicating calendar effects from the Chinese Lunar New Year, shows that something dramatically changed with the well-greased Chinese economic machine. That something was an abrupt drop in credit.

To wit: Chinese banks made 644.5 billion yuan ($105.21 billion) worth of new yuan loans in February, lower than a forecast of 716 billion yuan and below the previous month's 1.3 trillion yuan, central bank data showed on Monday.

Looking at the bigger picture, total social financing in February stood at 938.7 billion yuan, well below the previous month's 2.58 trillion yuan, and also well below expectations.


It gets worse: as SocGen calculates, Total social financing (TSF) recorded a gain of CNY 939bn in February. The sharp decline from the January level (CNY 2580bn) can be mostly attributed to seasonality but the TSF was also down yoy (1071bn last February), which dragged total credit growth down to a 20-month low of 17.1% yoy from 17.5% yoy, according to our estimate.


Breaking down the loan creation by various components, va SocGen:

Yuan loans increased notably less than expected by CNY 645bn (Cons. 730bn, SG 750bn). Although it was still 25bn more yoy, growth of outstanding loans inched down to 14.2% yoy from 14.3% yoy. However, once again, non-bank credit saw a much bigger slowdown. Entrusted loans increased CNY 80bn, CNY 63bn less yoy and the lowest in 20 months. Probably due to easier interbank liquidity conditions lately, the net increase in bond financing was up to CNY 99.5bn from the very depressed levels in the past two months. However, the first bond default that occurred on 7 March will likely reverse this nascent improvement trend. New trust loans had a sharp fall of CNY 104bn from January to CNY 78bn, the second smallest monthly increase since mid-2012. Reportedly, formal banks have started to distance themselves from the trust sector by scaling back trust product distribution to banks’ clients. It may also be the beginning of investors adjusting for the long over-due first defaults of trust products. Whichever the case, the near-term prospect for trust financing is not beautiful.

This latest money and credit report again supports our view that credit growth is still sliding and will likely remain so in the near term. In H2 2013, the credit slowdown was mostly responding to higher interbank rates, as intended by the PBoC. From here onwards, the downward pressure will come from follow-up regulatory tightening of the Document 107 issued by the State Council in January and, more critically, from financial market participants’ adjustments to fast rising default risk. Such adjustments are necessary for China in the long run to develop a healthy financial market, but are nothing if not risky in the short term. We think that the policymakers will run more default experiments, but at the same time stand ready to intervene so as to avoid a systemic financial crisis. Our central scenario remains that there will be disruptions but not a meltdown, but the risk is tilting to the downside.

Finally, the French bank's conclusion is hardly welcome for China bulls:

China’s total credit growth slowed further in February, again driven by shadow banking deceleration. Lower interbank rates have not really helped ease credit conditions. It seems that the rising default risk has started to erode Chinese investors’ confidence. Together with continued regulatory tightening on banks’ off-balance-sheet activity, we are certain that this slowing credit trend has further to go and will inflict real pain on the economy. The season of weak Chinese data has just begun.

That's ok, all of the above, too, is priced into the USDJPY algos.

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Kirk2NCC1701's picture

C'mon, we gotta give the credit for something!

THX 1178's picture

Here it cooooooommmmmeeeesssssss.

Bosch's picture

Question is, whose house of cards is going to fold first, ours or theirs? 

WhyDoesItHurtWhen iPee's picture

Both are folding in parrallel fashion.  US 10 yr 2.788, time for gold monkey hammering.

TaperProof's picture

..but I thought growth was going to solve all the worlds debt problems.  What happens now?   :)

Lordflin's picture

Or it could just be that China will go down the same drain hole as the rest of the world.

G.O.O.D's picture

Same problem as we all face, the only way money gets into the system is through usury which is not sustainable. All usury systems get top heavy and crash. We need a better system, but what? Jubilee?

robertocarlos's picture

Drop pallets of 100 dollar bills from the sky. Sure a few people will be crushed by said falling pallets but the rest of us will be rich.

Sudden Debt's picture

Credit goes to who credit deserves...

The Most Interesting Frog in the World's picture

Credit goes to TBTF and government shill companies owned by Elon Musk...

The Most Interesting Frog in the World's picture

This is what was playing out behind the Iron Curtain for so many decades - though probably on a smaller scale...  We just couldn't see it.  One day, the Chinese will, too, be standing in bread lines and Americans will be filming "COPS in China".  And a Vlad Putin stand-in will be running the show...

BTW, if you have never seen COPS in Russia, look it up and give it a view.  This is what happens when - after decades of socialism/communism - nobody gives a fuck anymore...

Bosch's picture

I can just watch COPS - Detroit for that.  

The Most Interesting Frog in the World's picture

I should have seen that coming...  Great point....

WhyWait's picture

The human mind is hardwired to find meaning in random noise, which is why we expect analysts to be skeptical and methodical. 

Tyler's no doubt right about an unfolding crisis in China, but when I look at the charts behind these breathless headlines I see random fluctuations.  If I look hard enough I can see a trend.  

At least the data is not inconsistent with a trend.


robertocarlos's picture

A Chinese bank is the same as an American bank. Plenty of reserves and won't lend out a dime.

Lordflin's picture

Credit = Bondage

Eventually the banks/ empires own everything... peasants revolt as they finally understand that there is a class of parasites sucking the life out of them.

Order is restored... a new system is established sometimes free on a relative basis... sometimes not.

A new class of parasites learn to game the system and the entire cycleis renewed.

Only this time may be different as there may not be anything left...

elwind45's picture

There is always something inside a figggg newton

slightlyskeptical's picture

"which dragged total credit growth down to a 20-month low of 17.1% yoy from 17.5% yoy, according to our estimate."


17% year over year credit growth is still pretty strong. In only one year prior to 2009 did they have a greater rate of credit growth. Everyone always called for moderation and now that we have a bit it signals China is in the shitter?


Tekrunner's picture

Words like "soar", "plunge", "collapse", "abysmal" have pretty much lost all meaning on ZH, and are merely used as decoration / click-bait.

HRamos_3's picture

Dude... No tumbles, crash, collapse or synonyms please.


squid427's picture

Correct me if I'm wrong, but the banksters solve the problem of a failing ponzi with another ponzi.The 2008 collapse was solved with QE, sort of. There is no way to create GDP growth fast enough to keep up with debt levals. So, how can the banksters solve this failing ponzi, or at least postpone it? 

elwind45's picture

Increase the overall take from the takehome? At some point before 100% taxation the Indian people stopped producing for the EIC and were willing to take a bullet by leaving the their lands. The British had no plan but to kill the farmer. Of course than Opium replaced the factories. Our system is based on everything funnelling up against nature. As it gets tough the tough pay more!

debtor of last resort's picture

Endless rollovers of misplaced trust.

elwind45's picture

I have seen things you people would not believe washed away like tears n rain

Spungo's picture

I don't understand what any of this means. That first graph appears to show credit going back to where it was before.

homiegot's picture

China is a mental illness.

elwind45's picture

It must be frustrating to the POC to allow anything to fail. After pumping so much new money after old at the new year something collapsed by a whorbunch already

Jull's picture

When the financial system is build on any kind of credit, it's likely to start sliding one day or another, we should change the overall pattern to cope the crisis we have all over the world in the financial sphere, to my mind.