No matter the reason for these sharp swings we are seeing in credit creation, one thing that was taken for granted by all is that unlike China’s GDP, or most of its “hard” macroeconomic data, at least its credit creation metrics were somewhat reliable, and have thus far provided the best brief look into Chinese economic inflection points.
However that appears to be no longer the case. In an analysis conducted by Goldman’s MK Tang, the strategist notes that a frequent inquiry from investors in recent months has looked at how much credit has been stretched to Chinese households and corporates.
As well as this we have seen them fabricating its broadest credit creation aggregate, with the underlying “new credit” number turning out to be far larger than anyone had anticipated. Goldman has warned that “the trend of China’s leverage has probably deteriorated “, that “the economy’s dependence on credit has deepened significantly and that it likely needs sizeable flow of credit on a persistent basis to keep a solid level of growth” and that “such a scale of deterioration certainly increases our concerns about China’s underlying credit problems and sustainability risk”. This surely must mean that we are about to see China’s economy fall off a cliff.