China's Credit Growth Grinds To A Screeching Halt: Why This Is Very Important

Tyler Durden's picture

Last night, when previewing the most important macro event of the day - far more important than US retail sales which predictably tried to refute the gloomy reality reported by actual retailer CEOs - namely China's montly loan creation number, we said that "according to MarketNews, Chinese bank loan growth is expected to slow sharply in April compared with March as the pillar of bank lending, mortgage loans, slowed as the property market cooled." Citing bank officials, MNI said that combined new loans in April by the Big Four state-owned banks were more than halved from March's level.

This is precisely what happened just a few hours later, when the PBOC reported April credit growth and monetary data all of which came solidly below expectations, to wit:

  • New CNY loans: Rmb 556 bn in April (RMB loans to the real economy: Rmb 564 bn) vs consensus: Rmb 800 bn. and down steeply from March's new CNY loans of Rmb 708bn.
  • More importantly, Total social financing plunged nearly 70% to Rmb 751 bn in April vs. consensus of Rmb 1300 bn, and down from March's near record Rmb 2336 bn.
  • Outstanding CNY loan growth: 14.4% yoy in April (13.2% SA ann mom, estimated by GS); March 14.7% yoy (11.2% SA ann mom).


The chart below from Axiom shows not only the sharp slowdown in TSF, but that at CNY751BN, it was effectively unchanged from a year ago, something China can not afford as the only way China's economy will keep growing is if its total loan growth grows at a substantial pace above GDP.

Perhaps most important was the substantial slowdown in the growth rate of China's all important M2, which rose 12.8% yoy in April (3.2% SA ann mom) vs. consensus: 13.5% yoy. and down from March: 13.4% yoy.


This is Goldman's take on the data:

Slower credit growth in April was likely the partial result of tighter liquidity conditions in the interbank market. Administrative controls might have played some role as well. Higher yields and credit spread may also contributed given the decrease in corporate bond net issuance under TSF. There were also some crowding out effects of very large amount of local government bond issuance which were mostly bought by banks.


Fiscal deposit change was a major drag on M2 growth. Fiscal revenue growth was as high as 14.4%, mainly because of attempts by the government to collect the last month's operation tax before they are abolished and changed to VAT. Fiscal expenditure growth slowed after very strong growth in March, which was impossible to maintain. FX flows were likely relatively stable with no major outflow nor inflows.


April money and credit data indicate that tweaking of the policy stance likely started in April, before the late April Politburo meeting and early May People's Daily editorial suggesting less stimulative policies. Such a change is unsurprising given the rebound in activity growth,rising concerns about inflation and leverage. To what extent the latest policy comments will have additional impact on policy in May and beyond is uncertain, but we believe 2Q policy as a whole is most likely to be less supportive than 1Q. Domestic investment demand growth as a result will likely receive less support.

Goldman may not have visibility into May, but MarketNews did. As we quoted MNI last night, "it appears the situation is even worse into May. Shenzhen saw house sales in the first week of May plummet another 49% when compared with the previous week, dragging year-to-date sales into a 1% drop in terms of floor space."

But the biggest concern for China, and the world, is that now that China's credit impulse is gone, it means that the it is only a matter of time before the impetus behind Chinese, and global growth, evaporates as per the timeline persented in the following Goldman chart, which explained the surge in Q1 economic activity, and which now anticipates a steep slowdown in the second and subsequent quarters unless China manages to stoke its unsustainable credit growth once again.

Putting it all together, we repeat our conclusion from last night: "China finds itself between a rock and a hard place - should it unleash another massive credit impulse, it will find itself scrambling to contain the NPL fallout; should it taper the credit growth, it will see its economy suddenly swoon lower, resulting in even more currency devaluation and even more capital outflows (and even higher Vancouver real estate prices)."

In the meantime, here is the summary from Axiom's Gordon Johnson: "this is a greenlight to short commodities."

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NoDebt's picture

"Total social financing plunged nearly 70% to Rmb 751 bn in April vs. consensus of Rmb 1300 bn, and down from March's near record Rmb 2336 bn."

THAT is an ugly series of numbers.

You ever feel like Roy Scheider in 'Jaws' yelling for everyone to get out of the water in the middle of Memorial Day weekend because there's a huge shark out there eating people?  Everyone looking at you like "Fuck you, I'm on vacation, I'm not getting out of the water you old kook."

BandGap's picture

Beauty is in the eyes of the beholder.

Time for the shitshow to start, anyway. Time for the boys to use the girls' bathroom (don't forget to put the seat down!) and time for the 4th turning to get into high gear.

Fish Gone Bad's picture

The transgender sociopath will leave the seat up.

Déjà view's picture

Soup du jour...

Sweet & Sour?

Nobody For President's picture

I don't get it. Everybody is worried about boys in the girl's bathroom. How about the poor tranny girls that identify with the boy's bathroom? The emotional trauma of young teenage boys realizing there is a girl (who has to sit down to pee) in THEIR bathroom who might see their tiny dicks?

All this focus on the boys that wanna be  (excuse, identify with another gender) girls?

It's raccist...

Skiprrrdog's picture

Oh boy... looking forward to that...I am going to be like an out of control fire hose in there...

KnuckleDragger-X's picture

If the central committee decrees it, it must be true. Jaws seems appropriate, except the leadership is demanding that everybody must swim, and the bloody water doesn't mean anything.......

ZH Snob's picture

carry that, fellas.


ersatz007's picture

not to be a stickler, but I think it was the 4th of July - not Memorial Day. but same concept..........

buzzsaw99's picture

i trust pboc reports even less than fed reports which is to say not at all

Quebecguy's picture

You meant less than none at all, right? 


GSR: 74.4 steady

Keep stacking

Spitzer's picture

If anything mattered, we would have ate our kids long ago. We've entered a period where we can will reality away.


why do I even bother logging into Zerohedge anymore ?

Fish Gone Bad's picture

why do I even bother logging into Zerohedge anymore ?

For the entertainment value of course. 

lasvegaspersona's picture


you sound like a guy who has never actually tasted a child....greatly over rated. I'll stick to perigrin and crane.

Skiprrrdog's picture

They *do not* taste like chicken...

south40_dreams's picture

Fuck China. They need us way more than we need them

south40_dreams's picture

Fuck China. They need us way more than we need them

Ignorance is bliss's picture

Please tell me why China needs us? As a consumer I get what made in China means to U.S., but what does investing in empty fiat mean for them. I fail to see what they get out of the bargain.

Theonewhoknows's picture
Theonewhoknows (not verified) Ignorance is bliss May 13, 2016 10:53 AM

The big market that can be buying stuff for debt created out of thin air. Also there is a lot of gold in the US and China is buying the amount of annual production (source: 01:14:30) - so sooner or later guys from FED may found themselves selling gold to Chinese.

the grateful unemployed's picture

they get a load of treasury bonds which are not liquid like currency, and which may lose value relative to the currency exchange necessitating a peg to their currency. chinas wants to have the worlds reserve currency, through the IMFs new SDR. to become one of the G nations. they want as much respect as Japan. they want to develop their economy. they don't want to be a third world player. the rest of the BRICs are falling out of the wall, Brazil, Russia, they want to get in the major leagues.

Consuelo's picture



I'd beg to differ (slightly), with China's 'desire' to be ~the~ world's reserve currency.   To be a respected peer?  Yes.   To have other nations willing to trade (with confidence) in their ¥currency?   You bet.    To have the ability to project power in their sphere of influence?  Of course.    Gold waits in the wings.

Consuelo's picture

USA...!!!  USA...!!!   USA...!!!


That's why...


You weren't expecting a cogent, informative reply based upon the reality of the dynamic, were you...?




lasvegaspersona's picture

China NEEDS our paper....without US Treasuries they cannot have a good currency..unless of course they do what the ECB has done and use gold as a reserve asset....they wouldn't do that though...would they?

D Nyle's picture

45% of grains to support china's population come from America

Skiprrrdog's picture

They get to come here and buy crappy, overpriced real estate...

joego1's picture

Now thats some lumpy feng shuei.

the grateful unemployed's picture

it looks like the credit surge to boost the steel market was a one and done. i still dont get that, at the end of the day there is still too much steel and the world is going to impose dumping regulations. its like buying up your own stock market. pretty soon the players are playing you, and then you have to put them in jail and the process starts all over, until the jails are full (like this country)

Yukon Cornholius's picture

There's a long way to go before the jails are full. They haven't even started The Running Man yet.

U4 eee aaa's picture

They haven't quite understood that credit maxes out capacity but once you have done that then every extra dollar in credit is pointless

U4 eee aaa's picture

This reminds me of the movie war games:

Learn Joshua(China), LEARN....

....Hello professor....

....The best move is not to play