No Credit Acceleration in March, No Crunch Either

Compare and contrast the headlines.

Reuters: China March social financing jumps
Bloomberg: China New Credit Falls 19% From Year Earlier, PBOC Says

The difference is Reuters is talking about month-to-month numbers that are quite volatile. Below is the monthly TSF number, below it is the year-on-year change.

That second chart gives a good visual of the slowdown in China's economy.

Foreign reserves increased in the first quarter. I expect reserves will reverse, but as long as they keep increasing it is a good sign for the Chinese economy.

From 2011 and into early 2012, forex reserves actually declined in some months and went y-o-y negative by summer 2012. It turned negative in September 2011, the month in which real estate rage first erupted in China and the global equity market correction started bottoming out. That month also marked the peak price for gold. Based on the numbers out today, which only give the figure for end of Q1, forex growth is slowing again, albeit very slightly.

As for money supply, M2 grew at 12%. M1 recovered, but back to y-o-y growth in the low single digits, the weakest since 2012. The Shanghai Composite, for comparison, was down 9% y-o-y at the end of Q1.

Elsewhere, evidence of tightening credit conditions continue to surface.
Taiwan banks put clamps on loans to mainland China firms

Taiwanese banks are shutting off lending to mainland firms. Offshore loans to mainland firms in the first quarter was just 15 per cent of the sums lent in the previous quarter, according to Thomson Reuters Loan Pricing Corp.

The banks' sudden departure from the market is pushing up mainland firms' offshore borrowing costs, by about 50 basis points to 1 per cent per year, said Stephen Chan, the Taipei-based head of corporate finance for Fubon.

Taiwanese institutions are a major supplier of foreign currency loans to mainland firms. By one estimate, they provide up to three-quarters of offshore loan capital to the mainland's small to medium-sized enterprises.

Several explanations are given in the article, with the simplest being the banks hit their lending limits.