#China Credit Tightening?
▪️ Aggregate Financing AFRE or Total Social Financing TSF growth slowed to 11% yoy May v/s 11.7% Apr
▪️ Renminbi RMB Loan growth inched down to 12.2% yoy May v/s 12.3% Apr
▪️ Optically Broad Credit YoY charts look scarier than they actually are
1/9
▪️ To start, target Fiscal Deficit 3.1% in 2021 v/s over 3.6% in 2020 => bound to be fiscal tightening by design
▪️ AFRE outstanding stock indeed points to recent marginal slowdown relative to post-COVID trend
▪️ But AFRE stock still above more longer term (4yr) trend
2/9
▪️ Credit did tighten in 2021 v/s exceptional surge in 2020 (base effect) but 2021 still ahead of pre-COVID yrs of 2017-19 => better call it credit 'normalization'
▪️ Govt completed only ~25% of 2021 bond issuance in first 5m of yr => backloaded => likely pickup in H2'21
3/9
Few key points by @michaelxpettis:
1. Not to focus too much on YoY as discussed above as well
2. Even at just 0.6% mom (4yr avrg +0.93%), AF YoY growth, ~9.3%, will be close to 2021 Nominal GDP growth expectations
3. Credit growth v/s Leverage ratios
4/9
Components of China Aggregate Financing to Real Economy (AFRE, as they call it now)
Total CNY 298tn
🔹 Renminbi RMB Loans CNY 184tn 61.5%
🔹 Govt Bond Issuance CNY 48tn 16%
🔹 Corporate Bond Issuance CNY 28tn 9.5%
🔹 Trust/Entrusted Loans/BA (Shadow) CNY 20tn 6.8%
5/9
RMB Loans, which form major portion of China broad credit (AFRE), are holding up well even relative to 2020
6/9
Corporate Bond issuance weaker relative to previous years => one of the key reasons for 2021 credit slow down
7/9
Deleveraging: tightening of Shadow Banking sector over years - another partial reason for credit tightening, though absolute numbers are small
8/9
Previous #DiveIn into China Macro around 'basically stable' FX:
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