- Do not put too much weight on the seemingly eye-popping lending numbers. Seasonal factors heavily distort numbers this time of year. Lending always jumps at the beginning of the year when banks are far away from year-end lending quotas. Credit growth numbers were modestly higher, but not out of line with recent months on a 1 year outstanding growth basis.
- There is no evidence of domestic PBOC monetary conditions tightening as a result of the fx interventions. The PBOC has been able to offset the fx interventions with broad domestic monetary policy tools.
- The numbers were consistent with the results over the last few months. Bank lending grew faster than overall credit as trust lending and local government lending has decreased. Transparent credit markets like bonds have outpaced shadowy trust and local government lending. These rates of credit growth may add some boost to short-term investment with a small increase to the total debt burden vs. GDP but not by any dramatic amounts.
- Credit growth is still outpacing economic growth. China's debt burden is a risk, and certainly a headwind to growth as resources are used to prop up indebted firms instead of improving economic prospects. But, crisis is not imminent, and in fact risks have receded a bit over the year with the shifting of debt from the shadows to transparent credit markets.
- All in all, credit numbers remain modestly positive for growth prospects, but not as much as implied by the headline numbers.
- The rising debt load has recently brought renewed worries over China's debt problem, and its potential for crisis. For more details on China's debt problem see:
Be vigilant over indebted Chinese firms, but don't freak out about China's debt load.
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