Set Your Watches: China Unplugs the Money Printer

ZH: China Credit Impulse Set To Collapse As Beijing Orders Banks To Curtail Loan Growth For Rest Of 2021

The report goes on to note that at a meeting with the People’s Bank of China on March 22, banks were told to keep new advances in 2021 at roughly the same level as last year. The directive targeted not only domestic lenders but also "some foreign banks" which were also urged to rein in additional lending through so-called window guidance after ramping up their balance sheets in 2020.

As Bloomberg adds, the comments give further detail to what the central bank stated publicly after the meeting, when it said it asked representatives of 24 major banks to keep loan growth stable and reasonable.

Some context: in 2020, the year when China's economy slammed shut briefly before staging a remarkable debt-fueled comeback, banks issued a record 19.6 trillion yuan ($3 trillion) of credit, with about a fifth directed to inclusive financing such as small business loans. Lending the same amount this year would bring the outstanding balance to about 192 trillion yuan, an annual increase of about 11%, and the slowest pace in more than 15 years.

ZeroHedge notes the same thing I've repeated here ad naseum:

Here Bloomberg makes a laughable conclusion, noting that "China’s government is taking advantage of the economic recovery to deleverage, a long-standing goal shelved during the trade war with the U.S. and further delayed by the pandemic." It's "laughable" because every time Beijing pushes in earnest with its deleveraging plans either stocks - or housing - crash, or overnight fund rates explode into double (or triple) digits and the market quickly forces the PBOC to reverse its deleveraging intentions.

Credit bubbles pop. China refuses to accept the pain of any recession. Result: every time they try slowing credit growth, the economy begins tipping the dominoes towards a recession. The government panics and restarts a brief credit cycle with a burst of lending. Here we are again.

In February I posted: China Monetary Growth Slows Below Red Line

In Mach: China Credit Growth Rolling Over Like in 2018

March data starts hitting next week. As I noted last month, if March is a typical month, TSF should be down a full percentage point from last month as the comparables become unfavorable. Usually March is a big lending month though, and I assume this order came in light of March data. I won't be surprised if credit growth holds up for another month before a further slowdown emerges in the April data.

As they say to stock investors: don't confuse a bull market for brains. On the way up, central planners look like geniuses. On the way down, incompetent. Governments have powerful economic weapons, but they are at the mercy of the markets. Over the long-term, repeated intervention leads to more destruction than creation. China's 2008 response put it on this hamster wheel of credit and it has been stuck ever since. The rest of the world, particularly commodities markets, have been stuck right along with it.