Chinese Commodities Crash Limit-Down As Wealth Management Product Issuance Collapses

It seems Kyle Bass' warning was extremely timely. The deleveraging of China's $4 trillion shadow banking system just accelerated massively as Bank Wealth Product Issuance crashes 15% month-over-month. With stocks and bonds already plunging, commodities joined the ugliness tonight with Dalian Iron Ore limit down (8%) at the open (not helped by tumbling auto demand).

As Bloomberg reports, China April Bank Wealth Product Issuance Falls 15% M/m

Number of wealth management products issued by banks fell to 10,038 from 11,823 in March, 21st Century Business Herald reports, citing citing Wind Info data. The decline came after regulator tightens regulation on macro-prudential assessment and interbank business. Among top ten banks by wealth product sales, nine sold less than previous month (with the Agricultural Bank coillapsing 48%) only Minsheng Bank issued more.

And it's weighing on the economy al;ready as China PMIs are all plunging (with Caixin Services tonight) - Activity in China’s services sector grew at its weakest rate in 11 months, a survey sponsored by Caixin showed on Thursday, in a further sign the world’s second-largest economy is losing some steam. The Caixin China General Services Business Activity Index fell for the fourth straight month to 51.5 in April, down from 52.2 in March and the lowest since May 2016’s 51.2, according to the poll compiled by international information and data analytics provider IHS Markit.

As Bass concluded so ominously:

"What you see when the liquidity dries up is people start going down... and this is the beginning of the Chinese credit crisis."

And that's what we are seeing...

Commodities...

Are following Bonds...

 

And stocks...

 

And as PIMCO noted earlier, the China credit impulse is now running in reverse...

 

The question now is not if China slows, but rather how fast. Equally important perhaps is the extent to which commodity prices will correct lower, especially in light of the current enthusiasm about the potential strength of the global growth cycle. The impending slowdown in China could be compounded by ongoing government efforts to rein in shadow bank credit; the cost of policy mistakes rises once the credit impulse goes into reverse.