By John Richardson
TOTAL social financing (TSF) in China increased by just 4% in H1 of this year over the same period in 2013, according to official government figures (TSF is the measure of total new credit issued in China, via both the official banks and the “shadow” banking system).
This figure is of far greater importance than the release last week of the largely fictitious second quarter GDP growth number of 7.5%
Here is a reminder of why TSF is so important:
- The Chinese Academy of Social Sciences, the government-run think tank, said in January that credit growth would have to be 12% for the whole of this year if the economy was to expand at the same rate as it did in 2013.
- A 12% rise in credit would “cause massive macroeconomic risk, because non-performing loans will pile up faster and the goal of reducing the economy’s reliance on credit-fuelled expansion will recede even further into the distance,” said the academy.
- If you added the academy’s analysis to the statements of intent made by China’s leaders at last November’s Third Plenum, and to many of the subsequent comments by Xi Jinping and Li Keqiang, the direction was crystal clear – much-lower credit growth in 2014.
Hence, the 4% increase in TSF in H1 should be of surprise to nobody and explains the persistent weakness in petrochemicals markets and in other manufacturing industries.
This weakness is most obviously the result of companies, both good and bad, being starved of credit.
And the weakness across manufacturing is also a product of the damage to the wider economy being caused by the biggest victim of deleveraging – the property sector.