China Unleashes A Debt Tsunami: Creates $1 Trillion In Debt In First Two Months Of 2016

Tyler Durden's picture




 

One of the more stunning economic updates this week was China's unprecedented surge in Chinese loan creation, when as reported earlier this week, China unveiled a whopping CNY3.42 trillion in Total Social Financing, its broadest debt aggregate, an amount greater than half a trillion dollars, of which CNY2.51 trillion was in new bank loans.

 

The reason for the surge was largely the result of frontloading loans, as well as lending to government projects in the first year of 13th Five Year Plan, which helped to boost loan growth. Many economists had expected loans to slow sharply in February as lending to government projects wound down.

However, it turns out this was just the start of China's latest policy, which is really just a return to its old policy of flooding the economy with debt: as Market News reports expectations that "January's surprisingly strong new loan growth would prove temporary may have been premature as bank officials in a number of Chinese cities say February new loans look to be just as strong, even with a week-long holiday in the middle of the month."

According to MNI, new loans so far in February were similar to the levels during the same days of January. The total so far in February is seen at around CNY2 trillion already.

MarketNews adds that this was achieved despite fewer working days in February because of the lunar New Year holiday, suggesting even more loans were churned out every working day.

It also means that if the TSF components rose at a comparable rate as in January, then the total increase in aggregate Chinese debt is on pace to surpass CNY6.5 trillion, or $1 trillion in new debt created in 2 months! This is roughly how much outside money the Fed added to the US economy during one full year of QE3.

The surge was surprising. As MNI reports, the strong January numbers had been expected to moderate for a number of reasons.

  • Firstly, Chinese banks typically try to get as much loan money out the door as possible early in the year to maximize interest income for the rest of the year.
  • Secondly, Chinese companies have been paying down foreign debt on expectations that the yuan would continue to weaken and that process has been expected to slow.
  • Thirdly, and perhaps the biggest surprise in the February loan growth thus far, loans for government infrastructure projects that helped boost the January data were expected to slow. That does not appear to be happening.

This means that just like Japan panicked on January 29 when it announced NIRP, so China too has taken on what may appear a step of desperation and is hoping to jumpstart the economy by flooding it with record mounts of debt. Mizuho said in a note to clients late Wednesday that a massive stimulus package is likely in the pipeline.

"We expect public infrastructure projects to receive another boost to stabilize the economic downtrend. This may include construction of intra-city railways, railways in the central and western provinces and making improvements in the agricultural sector. A new round of massive stimulus, in our view, will be announced around the National People's Congress, which will likely convene in the second week of March," said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd.

To be sure, the immediate impact from this credit surge will be favorable, if only in the near term as the following chart shows:

 

The downside to the surge in lending is that while it could support economic growth as the government undertakes much-needed structural reforms, it is also increasing the country's already high debt burden. Credit is still growing much faster than even nominal GDP, which means China is getting far less economic bang for every yuan of lending.

Finally, recall that according to a Rabobank analyst, China's debt/GDP is already at 350%. At this rate, it will surpass Japan's 400% debt/GDP within the year, making China the most indebted nation in the world.

Most importantly, however, is that while the threat of NPLs coming to the fore has been a major concern for many China watchers, the indiscriminate surge in Chinese debt issuance means that the trillions in bad loans will be promptly masked by all the new loan issuance. It also means that China's day of reckoning has likley been pushed back by at least 1 or 2 quarters.

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Thu, 02/18/2016 - 10:21 | 7201665 Bangin7GramRocks
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Just more wealth creation for job creators. Move along folks. Nothing to see here.

Thu, 02/18/2016 - 10:32 | 7201723 pods
pods's picture

Are we dangerous here?

"Yeah baby, we dangerous."

Thu, 02/18/2016 - 10:35 | 7201737 Mr.Sono
Mr.Sono's picture

It's either debt or war. Got to keep sheep busy.

Thu, 02/18/2016 - 10:40 | 7201764 JRobby
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(muffled cow bell sound) "Bring out your debt!" (muffled cow bell sound) "Bring out your debt!"

 

"I'm not ready to go on the cart!"

Thu, 02/18/2016 - 10:50 | 7201809 Calmyourself
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The upside for China and yes there is one:  they finally cleaned out Fort Knox of all that barbarous relic jewelry ..

Thu, 02/18/2016 - 12:59 | 7202546 techpriest
techpriest's picture

I just got back from China, and learned that they are seizing passports of various government/state-owned company employees and demanding that they report their assets, along with the assets and locations of their children. Something big is about to go down over there; passport seizure = the doors are closed.

Thu, 02/18/2016 - 10:43 | 7201773 MalteseFalcon
MalteseFalcon's picture

Thought China was through with this nonsense.

I guess they would rather go off a cliff later than suffer some pain now.

Another 2009 'stick save' everybody!!

So what if the inevitable cliff gets higher.

Buy stawks!!

Thu, 02/18/2016 - 10:51 | 7201813 Mike in GA
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This is the stuff Krugman's dreams are made of.  When the planetwide debt bubble blows arrogant assholes like Krugman should be strung up.

Thu, 02/18/2016 - 11:43 | 7202093 savagegoose
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off a cliff at 100mph, or 50mph? you still hit the ground at the speed of gravity

Thu, 02/18/2016 - 12:40 | 7202435 Citxmech
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I guess the operative question then is:  "How deep is the hole we dug?"

Thu, 02/18/2016 - 10:22 | 7201668 wildbad
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hey tylers,
i would like to know about the level of gubbmint requests for user information on this site.
Please answer in the comments the following questions.

1) do you get regular requests from any fed agencies for posters information?

2) are you required by any law to provide this info?

3) do you provide it?

4) which federal agencies?

5) is there a law which prevents you from commenting on this topic?

Thu, 02/18/2016 - 10:33 | 7201728 NoDebt
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Up vote BUT... where the fuck did this come from?  I assume I've got my own personal NSA agent following me around everywhere I go on the internet, especially ZH at this point.  What the fuck do I care what they know about my internet proclivities?  The government could give me the bum's rush to the door at any minute of their choosing and I'd be gone.  Until that day comes, I dance while the sun still shines.

Assume the government knows (or could know if they focus Sauron's Eye on you) everything you do on the internet and you'll probably be right.

Thu, 02/18/2016 - 10:41 | 7201765 JRobby
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From someone who would use Alfred E Newman as their avatar?

Thu, 02/18/2016 - 10:44 | 7201774 wildbad
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and your point is???

nice avatar btw

Thu, 02/18/2016 - 10:56 | 7201830 peddling-fiction
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@wildbad

First of all, ZH does not use httpS, meaning that it is open non-encrypted web traffic and eavesdropping is complete and total.

There is no need for any goverment entity to ask or request ZH anything.

They have it all.

Also, if they were to ask ZH anything, their servers are in Switzerland and the ZH´s official company is located in Bulgaria.

Two very interesting choices for jurisdictions.

So wildbad, don´t worry.

No fear.

Thu, 02/18/2016 - 15:24 | 7203438 BuddyEffed
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Bulgaria!  I knew the Reds were behind this.   And it helps to explain all the plain talk and straight shooting from Putin too.

Thu, 02/18/2016 - 15:51 | 7203499 peddling-fiction
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Bulgaria is part of the EU and NATO. /lol

Thu, 02/18/2016 - 13:46 | 7202811 JRobby
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What Point?

Why Worry?

Thu, 02/18/2016 - 10:44 | 7201771 Dr. Engali
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The NSA doesn't give a crap about us.  They have us firmly ensconced in the matrix. As long as we have our little outlet here to mock and bitch about the system we're harmless. The Hedge has been absorbed into the matrix and become a system of control just like everything else.  

Thu, 02/18/2016 - 11:29 | 7202015 pods
pods's picture

You gonna finish that steak Doc?

Thu, 02/18/2016 - 11:38 | 7202065 Dr. Engali
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 I'm thinking some salmon sounds good right now. At least I can make believe I have free choice by saying no to the steak. 

Thu, 02/18/2016 - 12:53 | 7202507 skeelos
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And it comes with Fukushima sauce at no extra charge.

 

Thu, 02/18/2016 - 10:33 | 7201731 NoPension
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Compiling a reply. You should expect it soon.

Or, a knock on the door.

Thu, 02/18/2016 - 10:59 | 7201861 Arnold
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Prolly for unauthorized  use of a copyrighted image for commercial purposes.

Thu, 02/18/2016 - 10:36 | 7201742 commie
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I was wondering the same thing given the rabid anti-American tone of this establishment. A number of posters here need to be investigated.

Thu, 02/18/2016 - 10:38 | 7201750 NoDebt
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Why bother with an investigation?  Name 'em and we'll just line 'em up and shoot them for you.  Would that meet with your approval?

Thu, 02/18/2016 - 10:42 | 7201769 NoPension
NoPension's picture

Anti American. What the hell is that?

Failed to be completely programmed.

Thu, 02/18/2016 - 10:40 | 7201763 wildbad
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the question is serious and i'm interested in all of your comments as much as tylers.  this place is not , however, anti-american.  the americans here understand that the illegal manipulations in markets and democratic systems are the anti-american bit.  dissent is important and if you don't understand that then who is the anti-american here?

Thu, 02/18/2016 - 10:44 | 7201775 NoPension
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Satisfied yet?

Thu, 02/18/2016 - 10:45 | 7201781 wildbad
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Aaaahhh.  knock knock knock

Thu, 02/18/2016 - 11:15 | 7201946 commie
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Well, TD certainly qualifies IMHO. I'm not referring to the economic discussion. It is the geopolitical which is exclusively pro-Russian while no mention of the accusations of Russian bombing of schools and hospitals. Putin is hailed as a saint and noble leader while Obama is universally dammed in terms that are derogatory. At least that's my impression. The pro-Puting bias is so pronounced I take most posts with a grain of salt. 

Thu, 02/18/2016 - 14:48 | 7202126 peddling-fiction
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@commie

 

I only side with the truth.

For the Commander-in-Chief to shamelessly say that anybody criticizing the US Economy is peddling fiction is a great example of what is wrong in the States.

It simply is a lie and we are informed enough to know better.

Would that make you un-American. No. It would make you truthful and a trustworthy person.

Don´t get me wrong, I am well aware of how the US is great, as far as being innovative, enterprising and technological.

Manufacturing needs to be brought back, employment given only to Americans, and the FED needs to dissappear and believe me, USA will rise again beyond anybody´s wildest dreams.

Does anybody want to add to this? Or am I peddlin´fiction...

Thu, 02/18/2016 - 15:28 | 7203453 BuddyEffed
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Peddlin you are.  The barn doors are open and the horses have left on the resource backed economies.

Thu, 02/18/2016 - 11:14 | 7201939 TRM
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<- ZH is Anti American

<- ZH is Anti Stupid BS

Thu, 02/18/2016 - 11:07 | 7201899 Element
Element's picture

Yes.

Thu, 02/18/2016 - 10:24 | 7201685 Bangin7GramRocks
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Yes. Yes. Yes. None of your goddamn business. Yes.

Thu, 02/18/2016 - 10:24 | 7201688 Dr. Engali
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Clearly China has gone full Krugman. Speaking of Krugman, time for the morning dump. 

Thu, 02/18/2016 - 10:36 | 7201740 NoDebt
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Remember to turn around and yell "See!  I told you so!" at the turd before you flush, just like Krugman does.

(Not my line but still one of the funniest comments I ever read on ZH).

Thu, 02/18/2016 - 10:24 | 7201691 yogibear
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Plenty of American investors (sheeple) to buy it. Dump it on them.

Thu, 02/18/2016 - 10:25 | 7201692 mandalou
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Russia needs to cut ties with these idiots. They will be asking Vlad for favors soon.

Thu, 02/18/2016 - 10:29 | 7201711 LawsofPhysics
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...because debt is money right?  LMFAO!!!!!!

 

Let me be clear, fuck em!

Thu, 02/18/2016 - 10:30 | 7201716 venturen
venturen's picture

Well Yellen isn't going to stand for that....she can produce 1/2 Trillions of debt by noon...no laws stops her!

Thu, 02/18/2016 - 10:31 | 7201721 homebody
homebody's picture

Hell, they have a ways to go to catch up to Obummer - print away.  Keep this pig of an ecomony in the air at all cost.

Thu, 02/18/2016 - 10:32 | 7201724 skeelos
skeelos's picture

Will Soros' short survive or will he be squeezed out?

Thu, 02/18/2016 - 11:00 | 7201871 AbbeBrel
AbbeBrel's picture

Sure no problem - they can use freshly printed Yuano to mop up all the flow streaming out of every pore in the Country. That can go on forever and nobody will notice, right? Wait, what? You don't want Yuano? You want to trade your Yuano for good old Buckees, is that right??

Thu, 02/18/2016 - 10:39 | 7201734 dumb_funded
dumb_funded's picture

delete delete delete

Thu, 02/18/2016 - 10:38 | 7201757 Seasmoke
Seasmoke's picture

I guess they need it to knock the price of Gold down. That's how it works.

Thu, 02/18/2016 - 10:39 | 7201761 NoPension
NoPension's picture

More Ghost Cities and Bullet Trains. Hell yeah!

USA, it would be more government construction, maybe an aircraft carrier.

Locally, the State Department wanted to spend a $ billion building a training center. When the locals rallied against it, the could not believe it, and moved on. Talk about a jobs program. I'm conflicted. It would have boosted local economy, but it felt like we would be building our own personal FEMA camp.

Thu, 02/18/2016 - 11:55 | 7202149 gammab0y
gammab0y's picture

And a stolen 10-15% to be converted straight into West Coast North America real estate.   

Vancouver real estate might have a lot more upside.

Thu, 02/18/2016 - 10:46 | 7201786 Arnold
Arnold's picture

"...surge in Chinese debt issuance means that the trillions in bad loans will be promptly masked by all the new loan issuance. It also means that China's day of reckoning has likley been pushed back by at least 1 or 2 quarters."

 

Loans to pay loans. Exactly what the economy needs to move it forward (over the cliff).

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