1. Data dump – credit
Monthly credit and monetary stats for September dropped late on Tuesday.
Spoiler alert: Pretty much everyone is getting the analysis of these numbers wrong because they are focusing on the wrong thing. Here’s Caixin, for example:
- “China’s total social financing (TSF)…grew by a net 2.27 trillion yuan ($320 billion) in September, higher than the net increase of 1.98 trillion yuan the month before.”
- “Last month, banks extended 1.69 trillion yuan in net new yuan loans, up 40% from August, recording the biggest September growth ever.”
We know we sound like a broken record, but what matters is not the flow of new lending, which is what the numbers above show. What matters is the growth of outstanding loans.
Here’s the data to focus on:
- Outstanding TSF expanded by 10.8% y/y in September – the same rate as in August, and down from the recent 11% peak in June.
- Outstanding RMB bank loans grew by 12.7% y/y – up a touch from12.6% in August and the same rate as in July.
- The major forms of shadow banking continued to shrink rapidly, with entrusted loans, trust loans, and bankers’ acceptances all recording negative growth, clocking in at -8.5% y/y, -4.1% y/y, and -12.7% y/y, respectively.
Get smart: See next entry.
Caixin: China Credit Growth Accelerates Though Real Demand Remains Weak
2.What to make of the credit numbers
Looking at the credit numbersoutlined in the previous entry, one thing is clear:
- The dynamics that have been driving weak overall credit growth for the past two years did not change one iota last month.
So what are those dynamics? Once more with gusto:
- Growth in bread-and-butter bank loans for businesses is inching up, while shadow banking continues to contract rapidly.
Tight regulatory oversight of shadow banking continues to keep a lid on overall credit growth – which is why TSF growth hasn’t broken above 11% all year.
That compares to average monthly growth of:
- 14.5% y/y in 2017
- 11.3% y/y in 2018
Get smart: Authorities remain reluctant to unleash creditto boost the economy.
By the by: In our view, that suggests Chinese officials still aren’t panicked about the trade tensions.
Get smarter: China’s. Economy. Ain’t. Gonna. Rebound – as long as credit growth is this sluggish.
3. One more hit on the credit stuff
And finally – a quick wonky, technical note on the credit data:
- The central bank (PBoC) once again adjusted the way it calculates TSF – adding exchange-traded asset backed securities into the corporate bonds sub-category.
Hey, we warned youit was wonky.
Some context: That’s the third time in the past 18 months that the PBoC has adjusted the TSF methodology.
Why it matters: It really doesn’t. The change had virtually no impact on the headline TSF number in September – although it should improve the PBoC’s tracking of on-the-ground credit dynamics over time.
At the end of the day: We’re nerds, so we have to point it out.
21st Century Biz:央行再度调整“社会融资规模”口径：首次纳入1.5万亿“企业ABS”
4.Li Keqiang encourages rail investment
Li Keqiang continued his inspection tour of Shaanxi on Tuesday.
Top of the itinerary: A visit to the construction site of a section of the Yinchuan-Xi’an high-speed railway.
The significance (Gov.cn):
- “The railway connects Shaanxi province and Ningxia Hui autonomous region, along with Gansu province, and has a total investment of 80.5 billion yuan ($11.38 billion).”
- “After the project is completed…the travel time from Yinchuan to Xi’an will be reduced, from 14 hours to 3 hours.”
Li had nothing but praise for the project:
- “The project is of great significance to stabilizing investment…and balanced development among different regions.”
And he wants to see more high-speed railways built:
- “We must take multiple measures to bring provinces without high-speed rail into the national network, so that they too can enter the fast track of development.”
Get smart: With the economic slowdown starting to bite, Li and other officials are keen to identify high-impact investment projects.
Hold up though: Investment can’t genuinely pick up as long as credit growth remains tight (seeentries #1-2 above).
How to square that circle: For the first time perhaps ever, Chinese leaders are looking not simply to push more investment, but to push better investment to help the economy.
Gov.cn:Premier Li inspects Yinchuan-Xi’an high-speed railway
5. Mini trade deal already looks iffy
Remember how yesterday China was desperate for everybody to know that they really had reached a mini trade deal with the US (see yesterday’s Tip Sheet)?
Well, it’s already looking dicey.
The deal according to Washington:
- China agreed to buy lots and lots of US agricultural products in exchange for the US forestalling new tariffs on Chinese goods.
But Beijing’s take is different (Bloomberg):
- “Beijing wants a rollback in tariffs… before China can feasibly agree to buy as much as $50 billion of American agriculture products that President Donald Trump claims are part of an initial deal, people familiar with the matter said.”
Is China trying to walk back the deal? Well not exactly.
It’s just that there’s a problem:
- “China’s tit-for-tat tariffs on American agricultural products make it more expensive for its firms to import the goods.”
So China needs to lift its own tariffs to spur purchases.
- “[China] would only do so if the U.S. reciprocates and lifts its tariffs on Chinese goods.”
Get smart: If negotiations over the mini deal are this fraught, there would seem to be little hope for agreement on thornier issues.
Bloomberg:China Ties Agriculture Binge to Trump Reducing U.S. Tariffs
6.State Council changes regulation for foreign banks and insurers
Yesterday, efforts to open up China’s financial sector took a critical step forward.
The big news: Premier Li Keqiang amended regulations governing foreign banks and insurers.
The big change: It will now be easier for foreign banks and insurers to set up shop in China.
Here’s what’s new for foreign insurers:
- They are no longer required to have at least 30 years’ experience in the insurance business.
- They are no longer required to have a rep office in China for at least two years.
- Foreign insurance holding groups will now be allowed to set up insurance businesses.
For foreign banks, the big changes are:
- Banks are no longer required to have had at least USD 10 billion in assets the previous year in order to set up a wholly-owned subsidiary.
- Foreign banks can now simultaneously set up wholly-owned foreign subsidiaries and branches of their international banks.
- The service scope for foreign banks has been greatly expanded to allow (almost) the same business as their Chinese counterparts.
What to watch: The China Banking and Insurance Regulatory Commission should announce revisions to its detailed implementation rules soon. That will clarify how exactly foreign financial institutions can take advantage of the new regulations.