China Credit Growth Stabilizing, Currency Devaluation Coming

China M2 growth was 1.60 percent in June 2019 vs 1.56 percent in June 2018. The 3-month rate of growth slowed from 7.1 percent in June 2018 to 6.9 percent in June 2019.

If M2 were to grow at this pace over the next year and reserves and the yuan stay stable at current levels, the reserve coverage of M2 would fall below 10 percent in 2020.

ING: China: Soaring loan growth is a worrying signal
Total financing increased by CNY2.26 trillion in June, with yuan loans increasing by CNY1.66 trillion.

Credit growth was exceptionally strong and this worries us. It means the Chinese economy needs a lot of funds to keep infrastructure investment growing at a level that can maintain GDP growth above 6% at a time when manufacturing PMIs and export growth are negative.

Bloomberg: China’s Tepid Growth Prompts Calls for Imminent Rate Revamp
China’s slowing economy and clogged policy transmission are adding to the urgency of a reform of the country’s interest rates in order to lower borrowing costs.

With the economy about to post the slowest pace in years, economists from Bank of China Ltd to Citigroup Inc and Everbright Securities expect the central bank to accelerate a long-mulled revamp to simplify the complex array of interest rates.
I must reiterate every time that this is ultimately a U.S. dollar story and if the dollar begins (or has begun) a bear market then the outlook changes. But right now, if China cannot growth the economy without more stimulus, directed investment and credit growth, risk of currency devaluation is rising quickly.

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