China Just Created A Record $540 Billion In Debt In One Month

Tyler Durden's picture

One week ago, Deutsche Bank analysts warned that the global economic boom is about to end for one reason that has nothing to do with Trump, and everything to do with China's relentless debt injections. As DB's Oliver Harvey said, "attention has focused on President Trump, but developments on the other side of the world may prove more important. At the beginning of 2016, China embarked on its latest fiscal stimulus funded from local government land sales and a booming property market. The Chinese business cycle troughed shortly thereafter and has accelerated rapidly since."

DB then showed a chart of leading indicators according to which following a blistering surge in credit creation by Beijing, the economy was on the verge of another slowdown: "That makes last week’s softer-than-expected official and Caixin PMIs a concern. Land sales, which have led ‘live’ indicators of Chinese growth such as railway freight volumes by around 6 months, have already tailed off significantly. " 

As DB concluded, "If China starts to slow again, the current risk-friendly environment has a short sell-by-date, particularly given rising oil prices and our view that any Trump stimulus will take at least a few quarters to work its way into US growth."

Yes... but not yet, because as China reported overnight, in January Beijing injected the greatest amount of aggregate monthly credit, between bank and shadow loans, i.e., Total Social Financing, on record, amounting to an all time high $540 billion.

While China injected Rmb 2,030 billion in new loans, slighlty below consensus estimates of 2,440bn - still the second highest number on record - it was the surge in TSF that stunned China watchers: in total, China added a record Rmb3,740 bn in aggregative financing last month, far greater than consensus expectations of Rmb3,000 bn, and more than double the December total of  Rmb1,626 bn. The implied month-on-month growth was 15.1% SA ann mom, up from 12.8% in December. (There was no issuance of local government bonds in January compared with Rmb102.3 bn of issuance in December according to WIND data.) According to the PBOC, TSF stock growth (not adjusting for local government bond issuance) was 12.8% yoy in January.

With loans coming below expectations, and total aggregate credit trouncing consensus, this means that in January, contrary to stated intentions to tighten and delever its shadow banking system, China unleashed the biggest shadow debt expansion on record, driven mostly by undiscounted bankers acceptances, as well as growth in both Trust and Entrusted Loans.

Some observations: although new loans at the beginning of the year tend to be seasonally high, in this January, the PBOC had been aggressive in keeping new RMB loans under check, on the back of inflationary pressures, rising leverage and solid activity growth. PBOC adopted a combination of measures including administrative intervention and market approaches such as raising the Open Market Operations rate. New RMB loans in January were, as a result, lower than market expectation, and its growth rate moderated slightly on sequential basis.

On the other hand, Total social financing surprised drastically on the, mainly due to the following reasons:

  1. substitution effect - because there was no local government bond net issuance and new RMB loan extensions were strictly monitored by the PBOC, commercial banks shifted to alternative credit channels such as bank acceptance bills (+Rmb613 bn in January vs. +Rmb159 bn in December last year) and trust loans (Rmb318bn in January vs. Rmb164 bn in December);
  2. lower real interest rates and better corporate profitability in 2016 compared with 2015, which raised credit demand.

More importantly, this surge in credit has also resulted in a major credit impulse not only in China, but also around the globe, resulting in the latest inflationary push higher, and also leading to better than expected economic data as the impact of China's credit generosity entered the global economy. It also means that the inflection point envisioned by DB may not be here just yet.

In other monetary aggregate data, China reported that broad money growth accelerated slightly from December on a sequential basis. The drag from fiscal deposit change mostly dissipated (fiscal deposits increased by Rmb412.4 bn, lower than the increase in January 2016 and 2015). FX outflows have probably remained large in January, which would dampen M2 growth.

As Goldman notes, "January money and credit data highlights the difficulties facing the PBOC. It is increasingly difficult to control broad liquidity supply to the economy amid an increasingly sophisticated financial market."

Curiously, according to Goldman this latest record credit push may be the last hurrah:

"we see rising pressures for the monetary authorities to raise funding costs, even though we expect the central bank will be likely to continue with its stringent window guidance. Stronger sequential broad credit (adjusted TSF stock) growth tends to be supportive of short-term activity growth. We see rising upside risks to our forecast of meaningfully weaker sequential growth in 1Q, although qualitatively speaking, 1Q sequential activity growth is still likely to be weaker than it was in late 2016."

Finally, the latest confirmation that Deutsche Bank may indeed be right following the record January credit expansion, comes from Moodys, which wrote that "a combination of tighter liquidity and stricter regulatory scrutiny on commercial lenders’ off-balance sheet activities will dampen fast-growing shadow banking activity in China, Broad shadow banking assets, including entrusted loans, financing through trust companies, undiscounted bankers’ acceptances, and wealth management products (WMPs) reached 58 trillion yuan ($8.42 trillion) in the first half of 2016, equivalent to 82% of gross domestic product, according to Moody's. As Caixin redundantly adds, "the shadow banking business is still growing." The Industrial and Commercial Bank of China (ICBC), the world’s largest bank by total assets, plans to issue additional WMPs worth 250 billion yuan in the first quarter of 2017, said employees of the state-owned lender. At the start of this year, ICBC managed 1.68 trillion yuan through WMPs.

While big banks are net fund suppliers in the interbank market, small and midsize banks, securities firms, and other financial institutions are net borrowers, the Moody’s report said. It pointed out that smaller banks rely heavily on wholesale funding, including aggressive issuance of certificates of deposit, and the purchase of WMPs in the interbank market as a way to boost profits amid declining net interest margins.

“Small and midsize banks are active investors in shadow banking products, including other banks’ WMPs, the trus and asset management plans of non-bank financial institutions,” the Moody’s report said. A growing reliance on wholesale funding exposes smaller banks to possible liquidity shocks caused by the withdrawal of funds by other financial institutions, especially when demand for cash increases at the end of the year or if default scandals occur, which in turn prompts the smaller banks to call back their own funds.


The growth of shadow banking may slow as regulation becomes more stringent, which mainly targets off-balance sheet WMPs, said Xu Jing, an assistant analyst with Moody’s Investor Service. In December, China’s central bank confirmed that it would include banks’ off-balance sheet WMP business in the Macro Prudential Assessment framework, a system to monitor commercial lenders’ credit exposure.

Following the record January expansion, China will have no choice but to take action if it hopes to have its "tightening" actions be taken seriously by the market and the global financial community.

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John Law Lives's picture


Raffie's picture

The dragon has ate all the food so now to start eatting the people who served the food.

Soul Glow's picture

Luckily for them they have a lot of USTs to sell.

Totally_Disillusioned's picture

thought they replaced most of them with IOUs...

NoDebt's picture

No, you're thinking about the Social Security Trust Fund.  China still has $2T of TSYs.  Of course, that's down from $3T not too long ago as they sold (and continue to sell) everything including the kitchen sink to defend their currency peg.


Soul Glow's picture

Mnuchin and his Treasury of algo bots.

chubbyjjfong's picture

The Fed and their Proxy's, let the circle jerk continue.

BigFatUglyBubble's picture

Tariff will cause them to dump even more.  The more the merrier when it comes to a circle jerk!

Blackfox's picture

"Sell to whom?"

Why, mighty Belgium of course!

Raffie's picture

Don't forget ALL THE TEA IN CHINA they have.

Totally_Disillusioned's picture

And the leftist accuse Trump f warmngering when he charges China as a currency manipulator...wonder what how they label this?

The_Passenger's picture

It's not like the Fed actions do not affect the dollar... 

LawsofPhysics's picture

Again, China is in fact the inventor of FIAT currency!!!!  They are much more advanced at currency manipulation than anyone else in the world!!!

The Fed (and the 'merican taxpayer) don't stand a chance.

Wang Dang SP's picture

Mei Wee Dong needs to buy more west coast R/E. 


Ghost of Porky's picture

We print 540 birrion dorrars. How much you print, Donard? Haha!

NoWayJose's picture

And suddenly, as if by magic, a half trillion dollars appeared... where nothing existed before!

Troy Ounce's picture


The power of fiat

Everything will go well until it doesn't.

It is not about Trump. Is about trust. 

oldschool's picture

Now that's what I call productive activity!  No wonder the economy's booming.

silverer's picture

If all that money is building tangible infrastructure, then at least the Chinese have something to show for it when their banking system collapses. In the US, Obama managed to make 10 trillion disappear without anything tangible to show for it except an increase in the size of the government.

LawsofPhysics's picture

Correct, however, given the way things work in China that would be very optimistic.

but I digress, controlling productive capacity and innovation is always key to future survival!!!

Seems that 'mericans are too busy eating their seed corn.

That will not end well.

BigFatUglyBubble's picture

Waistlines increased. It also went up wallstreet guys' noses.

kommissar's picture

infrastructure.  oh, you mean like those empty cities they're building with concrete that disintegrates with they pressure of a mans hand?  that's not infrastructure, that's graft. plain and simple, and the chinese are world experts in that.

BigFatUglyBubble's picture


Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) Feb 14, 2017 11:10 AM

China is an ethno-state and the oldest one on the planet.

China is buying real assets with fake money, because the global fiat pyramid is finite in duration.

I am not sure why this is so difficult for "experts" to understand.

tuetenueggel's picture

China and Russia bought more gold, then the rest of this world ( outside Indiia ) owns.

Gold finally will be money. Dollars or Euros are paper only.

SomethingSomethingDarkSide's picture

Slant eyed market propping fucks cost me a lot of money this year.. our markets are just communist now.  Watch them react to their QE, China owns us.  Or at least they determine when the rally ends.  Tomato, Tomatoe.

Paul Morphy's picture


China has gone one step further than knockoffs of designer handbags and watches by ripping off one of the famous banks in the US, Goldman Sachs.

unplugged's picture

if you never intend to or have to pay it back - what difference does it make?

might as well go for the gusto and make it $540 Quintillion and do God's work

tuetenueggel's picture

The only stupid ones are those, who pay a single dime on taxes.

buzzsaw99's picture

it takes a lot to keep those tremendous outflows going

TAALR Swift's picture

CNY down, USD up, AU down.

It's not rocket science. 

Hohum's picture

Success?  Success.  Success!

Inzidious's picture

500 Billion? In 1 month?

.... How much actual labor and production was just .. Completely obfuscated by a control-p?

I guess this is what happens before something crazy breaks out?

U4 eee aaa's picture

Only 1.4 billion in China and 7 billion on the planet.

tuetenueggel's picture

within 15 years 4 billion more sandniggers to be added.

No work, no radio, no TV only fucking their coalbags and making babies.

tuetenueggel's picture

Don´t worry. It´s printed paper only.

No real money. Since 1971 Mr. Watergate supended Gold from being money.

Nixon won´t come back but Gold will. Soon.  Ask the Chinks.

U4 eee aaa's picture

I knew those debtoholics couldn't stop. I knew the minute the shakes started they would be back at the printer

We need to face the fact that the CBs are debtoholics and they can't stop even if they wanted to

The only thing that will stop them is intervention

tarabel's picture



When I read stories like this, I am struck by how stupefyingly mad this all is. Every nation on earth seems to have adopted the policy of trying to keep their bubble alive longer than the next man's.

While I am grateful for the extra time to prepare for the inevitable smash, I do recognize that it will be that much harder, the longer it goes on.

May God run with us all.

tuetenueggel's picture

All states in this world have to keep the lefts and snowflakes shitting.

As they refuse to work, states would drown in civil wars if they´d demand work from them stupids.

BigWillyStyle87's picture
BigWillyStyle87 (not verified) Feb 14, 2017 12:23 PM

Half a trillion in one month, i personally look forward to the 1 trillion in a month. Only question is, will it be in 2017 or 2018?

venturen's picture

Yellen and Draghi will see about that!

tuetenueggel's picture

The earlier, the better.

Russian Gold will become so precious that they can buy back Alaska without nailin Pailin for 30.000 Gold Dollars again.

I´ll buy a piece of manhattan bridge and go cashing toll 10 cts per car.

venturen's picture

Wall Street appreciates your trillions!

tuetenueggel's picture

The more debt spreada da world, da better you are in Gold and Silver.

BitchesBetterRecognize's picture

Chinese know FIAT & what is for....

motherfuckers invented it! the know means shit - it's all made up!! 

So when all the systems breaks up- they'll be OK, because they know how to get back to basics!  

SomethingSomethingDarkSide's picture

Purge everyone upset by the decision - yay, Red China!  So advanced!

JBPeebles's picture

In a story virtually unseen outside of our little world here, I saw that the Chinese had jacked up their overnight lending rate to block access to credit. Don't follow the Chinese markets closely but in a highly leveraged environment, if your cost of capital goes sky high, you get called and have to sell.

Shadow banking is a worldwide phenomena. Money comes into existence through the extension of loans. In the conventional model, US Government issues debt and the investors buy it. In the ersatz model, the government doesn't care who buys it as long as their debt is bought.

Now if private entities can lend each other money, then they can create a spiralling up of liquidity. The Chinese aren't much different from us in the creation of new money through shadow banking.

Regulatory requirements are weak in interbank transactions. The issuance of an IOU needn't go through a secondary market; all you need is a buyer.

Now of course shady firms will sell their debt and create money out of nothing. Yes, they'll also incur a liability--having to pay back their creditor or the counterparty in the future--but they have in fact made money.

This process circumvents the Fed's creation of money. Now with derivatives, it's important to understand profits can be conjured out of thin air through a combination of cheap capital (as with the Yen carry trade) and leverage. Fractional reserve banking took to levered bets once Glass Steagal left us. Their capital ratio teeters below 5%; Trump's new regs may eliminate the stress tests and make further leveraging possible.

What happens in China may presage what happens here. Over there, demographics may be turning quite negative and as a general rule we consume more and save less. If China's burgeoning debt load shows anything, it's that a liquidity trap is created. Good articles explaining that monster have shown up here so try and understand the dead end easy money brings. Feed it more or the debt devalues is my quick take on it.