More Signs of China Credit Growth Slowing

The Sounding Line: Leland Miller: Borrowing from Chinese State Owned Firms Shrinks Most on Record

What we are seeing in the first quarter is fascinating… It’s was to early to call this deleveraging. We’re talking about a few months, we’re not talking about three quarters or six quarters, but we’re seeing a real change in the credit situation… When we look at our SOE data…, we’re seeing the lowest levels for state firms borrowing that we’ve ever seen in the history of Beige Book data… Large firms are at the lowest level of borrowing that we’ve seen in five years… You’re seeing credit costs go up across the board… The firms that are typically at the very front of the queue when it comes to accessing capital in China, for the first time in our data, are very dramatically (reducing) their borrowing…”

“After years and years of not seeing deleveraging despite many, many promises that deleveraging was happening, we were never expecting it, so to see this pop out in our data was very interesting for the first quarter.

In isolation, this is bad news for the global economy in the short-term. If the U.S. also stops printing because the stimulus bills fail, markets could turn disinflationary in a hurry.