Thread by @ChinaBeigeBook

Many have asked us to step in to clarify what's really going on across #China's faltering economy.

As @michaelxpettis notes, the critical issue is "stimulus" vs loan demand.

But @ChinaBeigeBook data over past 6+ mos show there is much more here than meets the eye.
*THREAD*
1/

https://twitter.com/michaelxpettis/status/1529075786862718979

For virtually all of 2021, credit was extremely tight, w/uptake at corporates at, or hovering near, all-time @ChinaBeigeBook lows. Combination of constricted [govt dictated] supply & putrid levels of loan demand.
2/
bloomberg.com/news/articles/…

Very end of '21 we saw a curious change in the data.

While borrowing remained tight & firms STILL not applying for new loans, our pent-up loan demand gauges started to rise. 4 straight months into April, loan demand rose...meaningfully.
3/

Buy why juxtaposition of falling loan applications at same time as firms reported wanting to borrow more?

Firms told us: Credit was too expensive! For 1st time in 18 mos, cos said they actually wanted to borrow. But they wouldn't pay the going rate.
4/
bloomberg.com/news/articles/…

But...but...interest rates were easing this whole time, you may be thinking. Not true!

While #PBoC was tweaking a few "benchmark" rates by 5-10bps during this time, leading to headlines of "Easing!," 1000s of cos on the ground were grumbling to us about sky high credit costs.
5/

This is 1 reason we pushed back so hard when the usual Wall St voices were #China-splaining all the easing going on. It was never true.

Chinese corporates kept telling us, month after month, that these analysts were just making it all up.
6/
To wit:

https://twitter.com/ChinaBeigeBook/status/1487875483811282947

In any case, a window DID exist early spring where 🇨🇳cos had some (newly ignited) interest in borrowing.

Had #PBoC stepped in then & aggressively targeted rates, it's possible #China's economy could've seen a quicker & more intensive '22 recovery than most were expecting.
7/

But then...#CovidZero took over.

Starting mid-March, CBB data started to tank as lockdowns hit. Not just activity data but credit data too. Few firms now wanted to borrow.

Made sense: you can't stimulate an economy that is largely locked down.
8/
cnbc.com/2022/03/29/chi…

So here is where we stand:

1) #China is under extreme duress so long as #CovidZero lockdowns continue. Duh.

2) Watch 🇨🇳's clogged ports. Rising backlogs cld export #inflation into US #supplychains. If so, that then becomes the #Fed's problem.
9/

3) Our May flash data are up in a few days, so we'll see...but there is as of yet no sign of meaningful #stimulus.

4) Independent of lockdowns, #China's economy is going to slow *precipitously* in coming yrs. And markets still aren't ready for that.
10/
bloomberg.com/news/articles/…