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     Feb 24, '14

China crisis in the shadows
Commentary and weekly watch by Doug Noland

This from Bloomberg on February 17: "Record new credit in China in January will help the economy maintain momentum while highlighting challenges for officials trying to limit the risk of financial turbulence from defaults and bad loans. Aggregate financing, the broadest measure of credit, was 2.58 trillion yuan ($425bn), the People's Bank of China said. New local-currency lending was 1.32 trillion yuan, the highest level since 2010. Trust loans, under scrutiny because of default risks, were about half the

level of a year earlier. The data add to better-than-forecast trade numbers, suggesting that China can limit the scale of any slowdown from last year's 7.7% expansion in gross domestic product. At the same time, the figures contrast with a central bank call in mid-January for lenders to control surging loans and highlight diminishing economic returns from credit growth."

A one-month $425 billion increase in system credit ("social financing") is something to mull over. For one, it was an all-time record for a month (in China as well as the solar system), surpassing last January's record (January is traditionally a big lending month in China).

Secondly, China's January credit growth was 35% above estimates. It placed year-on-year credit growth at 17.5%, significantly above slowing GDP expansion. And it was said that January's record credit would have been even stronger had the major banks not pulled back from lending during the final week of the month.

Bill Gross has called China "the mystery meat of emerging-markets". I would tend to view Chinese finance and their policy regime attempting to manage system credit the proverbial mystery wrapped in an enigma.

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Doug Noland is a market strategist for the Prudent Bear Funds.

(Republished with permission from PrudentBear.com. Copyright 2005-2014 David W Tice & Associates. All rights reserved.)




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