So we got China credit data late Friday evening and it’s notable if only for what it says about Beijing’s desire to put its best foot forward ahead of the Party Congress.
Here are the numbers:
And here’s the visual:
This just underscores the tightrope walk for China. They’re supposed to be curbing credit expansion, leverage, and risk-taking. That’s part and parcel of the effort to squeeze the country’s labyrinthine shadow banking complex and head off the collapse that everyone has been warning about for years.
But that effort carries risks for the economy. When you curb credit expansion, you necessarily impede growth. Sure, you can try your best to “target” the tightening effort – to only turn the screws on the kind of unproductive, recycled credit that fuels speculation and never makes it to the real economy. But there will be collateral damage (figuratively and literally) and that will invariably show up in the headline numbers although this is China, so those numbers are malleable. Further, there’s no way of knowing where all of that unproductive credit ended up, so if you squeeze too hard, you end up bursting bubbles that you didn’t even know existed, a scenario that has ramifications outside of China because for things like metals, it’s not always clear whether prices reflect reality or speculation.
Finally, because China is the engine of global growth and trade, pressing too hard on the brakes risks destabilizing a fragile global recovery. Simply put: the weight of the world is quite literally on Beijing’s shoulders here and because not deleveraging isn’t an option, you end up with all kinds of spinning plates. Throw in the micromanagement of the currency and the ongoing effort to open up mainland markets without relinquishing too much in the way of centralized control, and it’s nothing short of a miracle that none of the plates have come crashing down – yet.
