Chinese Credit Growth Reverses


Chinese economic recovery showed its fragile side in April, reported the People’s Bank of China in a report late last week. Chinese credit growth slowed down in the month of April after a record increase in the first quarter of 2019. Aggregate financing was 1.36 trillion yuan in April, while it was 2.9 trillion in March, a substantial decline.

China has been using credit expansions to stimulate the economy, which has been suffering mostly due to Trump's decision to impose tariffs on Chinese goods. Lately, the Chinese government decided to cut the amount of cash the local banks must hold as reserves, releasing about 280 billion yuan into the market.

As we already mentioned, Chinese credit growth surpassed analyst's estimates in the month of March, when banks extended 2.9 trillion yuan in loans while analysts expected 1.69 trillion yuan.

The data, which was released unexpectedly early, was released right before a tariff increase planned for this Friday. Trump threatened China with imposing more tariffs since, according to Trump, China broke the deal.

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"They broke the deal... They can't do that. So they'll be paying," Trump said during a campaign rally.

However, representatives from both countries are expected to have a meeting later today.

Despite the numbers, analysts expect Chinese credit expansion to rebound in the coming months.

“The sudden escalation of U.S.-China trade tensions and the recent sharp drop of stock prices could convince Beijing to take further easing measures to bolster confidence and stabilize growth,” policy insiders said to Reuters.

The Chinese economy is already saddled with tons of debt due to the massive fiscal stimulus during the 2008 crisis, so Chinese top officials already vowed in the past not to use the credit channel again to stimulate the economy. However, the Chinese monetary authority has cut the bank's reserve requirements about five times in the past year.

Sara Patterson has a Master’s Degree in political science and enjoys analyzing both current events and the international markets to get a fuller perspective of the currency market. Before turning to financial writing, she taught English writing skills to high-school age students. Sara’s work has been published on various financial and Forex blogs.