Is China's Trillion Dollar Q1 Credit Surge Already Wearing Off?

Tyler Durden's picture

Submitted by Bryce Coward via Gavekal Capital blog,

The last month, and especially the last two weeks, has seen a reversal in all the trades that tend to work in a world of increasing Chinese credit and infrastructure building, calling into question whether the impact of the trillion USD of new credit that was created in the first quarter is already starting to wane. Specifically, copper is starting to roll over again...



Rebar (the newly anointed proxy for Chinese state directed finance and infrastructure investment) has made a sharp reversal...



And the CSI 300 Index appears to be on pace to test the February lows...



In economic news, FX reserves were basically flat MoM in April, but after accounting for currency valuation effects FX reserves showed another outflow. Indeed, the chart below which converts Chinese FX reserves into units of the Chinese Foreign Exchange Trade System units (CFETS), was modestly lower again for the 6th month in a row.



Meanwhile, imports from Hong Kong in April (aka foreign subsidiary over invoicing the local holding company in order to allow capital to exit the Mainland) surged by 203% YoY suggesting massive capital flight...



All the above argues strongly that the incredible new credit creation in the first quarter may not be having the desired, long-term impact that it was intended to have. If that is indeed the case then we would not be surprised in the least to see worries of slower Chinese growth and currency devaluation to resurface in the weeks and months ahead.

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reader2010's picture

Don't worry. When nothing else seems to work,  they can always start a perpetual war.

GadExp's picture

Wearing off?  QE doesn't wear off.  It lasts FOREVER!!!!

ilion's picture

Hong Kong bullion banks have been actively buying physical gold on the open market for couple of months now. The Head of Brokerage of Vipro Markets, Antonis Monogios reported last Friday that liquidity on the spot gold market has become much thinner the past couple of weeks where even some strong players like Deutsche Bank have started to reject larger orders. I am not sure where will this ultimately lead us but it seems we are nearing some sort of major shock in the markets which I am sure physical gold will weather well.

Déjà view's picture


FED in lieu of taking a slow boat to China continues digging this debt hole deeper, which will end up in China?

wmbz's picture

No problem, just pump another trillion or two or three into it. Pull a Krugman and go full retard. It's been working so well.

Theonewhoknows's picture
Theonewhoknows (not verified) May 11, 2016 12:59 PM

China may be seeking to back their SDR participant currency with gold. This is why they are hiding their real reserves (source) and buying the amount of annual global production (source:  01:14:30). Not to mention that dollar index is showing how overpriced Franklin's are. If this is not enough check commodities (negatively correlated with USD) being the cheapest since 1974

If anyone can introduce gold standard it will be the Chinese. and after this yuuuuge bubble will finally burst. 

LawsofPhysics's picture

Yep, personally, I cannot wait for that commodity:dollar correlation to unwind.  Fucking bring it!

LawsofPhysics's picture

So what?  China is a centrally-planned, single party, communist state that can and will simply make the numbers what the fuck they want.  They will make the next stimulus a quadrillion.  They don't care if currencies go to shit and the world goes to war, they have considerable productive capacity now. 

Mountainview's picture

A Quadrillion of what? US$; Euro's or Zimbabwe $?

LawsofPhysics's picture

Does it matter?  What part of all FIAT are dying don't people understand?

847328_3527's picture

Only when the flood of Loot into Hongcouver, SF, LA, and Seattle die down will we know if the Trillion dollars are dwindling.

Mountainview's picture

China's domestic problems are not our business. If we impose a 45% tariff it will become our problem.

Government needs you to pay taxes's picture

Bullshit.  Manufacturers know placing jobs in China versus the US is VASTLY less expensive due to lower welfare/regulations/taxes.  To enable a level playing field for our workers, we MUST impose appropriate taxes on nations including China.  A 45% tariff sounds about right, at least to start.  Fuck China.  What that nation does internally is NOT our business.  Levelling the playing field for our workers via tariffs IS the US .gov DUTY to its people.

venturen's picture

Isn't it time for The Federal Reserve to scratch their back and buy imports, land or yuan bonds....or some other idiotic scam of Central Bank shell game?

too_big_to_fail's picture

That is the reason China is fucked, only Chinese citizens are allowed to buy government bonds. The only way a foreign company can own a business is to have a partnership with a chinese company.

It is way too isolationist to be an open market. China takes workers from China, and uses them in infrastructure projects in Africa. They don't employ native workers of the country their in.

Bismarckrises's picture

China has run out of consumers to sell them goods. There is no credit in the world and the debt is too much to pay unless there is some restructuring to do. 

Its time for China to do the right thing. THey are ready