This January new loans granted in China totaled CNY 738bn. “Not bad” I hear you cry! However, in the context of expectations of CNY 1tr, and a 29% contraction year-on-year there’s clearly something of a liquidity squeeze going on.
The sharp drop in lending has taken M2 growth to 12.4% year-on-year…the lowest pace of growth since 2001. In fact, M1 shrunk this January by 6.87%. Yes yes yes – there’s the impact of pre-New Year spending, but the 12 month RoC shows growth at 3.1%, the lowest since this data started being collected in 1990. In nominal terms M1 has only increased CNY 813bn over the past 12 months. This is around the same amount as the mid 2000 when China’s economy was significantly smaller than it is today.
There might be rebounds in the coming months, but don’t be fooled – monetary conditions are clearly tighter than most people think. This shocking January data is the antitheses of exactly 3 years ago when Chinese monetary data shocked everyone with the strength of growth that the PBOC unleashed in the face of gridlocked capital markets and industrial activity.
This is clearly going to affect mostly those sectors most dependent on credit, such as real estate development. This is going to have wider knock on effects.
While most people are not heavily invested in China, one should readjust their holdings in anticipation of the fall out. Here’s one idea…
This slowdown is going to impact the fertilizer, agrochemical and petrochemicals sectors. While we all obsess over the monthly WASDE reports, and machinate over the upcoming Chinese potash negotiations, I contend that something bigger is at work. A slowdown in China is going to impact corn prices, and with it the prices of the aforementioned sectors will be heading south. I don’t believe recent shutdowns by the likes of Potash Corp are enough to salvage the bottom line in 2H12. I readjusted for this a while ago, but it’s not too late.
(Also note – Indian and Brazilian lead macro indicators are not rosy for chems/agchems either. In addition, note the pressure to Indian fertilizer subsidies, and pressure to Chinese fertilizer exports).