Revealed alongside (massaged?) Chinese inflation data on Tuesday: sharply lower bank lending growth.
Which — given that China’s lending restrictions may well be more effective than rate hikes at halting liquidity — was quite an odd drop all round, actually.
New loans totalled RMB 1.04 trillion in January, said the People’s Bank of China, which is not the RMB 1.2 trillion the state’s own press agency reported shortly before the announcement. Hmm. At any rate — as far as context is concerned, Charles Dumas of Lombard Street Research is interesting:
After our seasonal adjustment, bank loans fell in January, for the first time since November, 2008 (effect of the crash) and July, 2005 (in the middle of the last previous squeeze on domestic demand). The 3-month growth rate of both broad money and credit has dropped suddenly to 12% from about twice that in 2010 Q4. This Q4 mini-bubble in Chinese credit, though partly a distortion reflecting already existing loans being brought on balance sheet under orders from PBoC, has helped fuel the latest inflationary upsurge of overheated activity…
(Chinese M2 growth is now a mere 17.2 per cent year on year)
It’s nice to know these off-balance sheet loans are being forced into the light at last. What’s probably less nice is that many such loans involved local government borrowing for property investment, which isn’t really supposed to be allowed (hence not being on balance sheets before). It’s not too much to assume these loans have a grim future.
So it may not be a coincidence, then, that mainland property developers are heading to Hong Kong’s brand new offshore renminbi bond market to issue debt (and usually at much cheaper rates). This appears to be a good way to avoid the cash crunch in Chinese banks hitting home too soon — but perhaps at the expense of keeping asset prices even higher for longer.
Add developments here to Chinese corporates’ increasing resort to short-term commercial paper, and it’s all looking very much like Japanese euroyen markets, circa the 1980s.
And we all know what happened next there, don’t we?
Related links:
Dim sum bonds are the new euroyen bonds - FT Alphaville
Here come the hot inflows into China – FT Alphaville
China’s trust factor - FT Alphaville
Illegal land use found common in eastern areas – China Daily