China: Let's Keep this Party Going
We got several important data points out of China over the weekend that I think are worth repeating. First was the fact that loan growth in China exploded 1.89 trillion yuan ($277 billion) in March, according to the PBOC. M2 money supply also exploded by 25.5%, which is the most since Bloomberg began compiling data in 1998 and well above the consensus.
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If annualized, this rapid rate of credit growth also happens to be even greater than the record rate of nonfinancial debt growth the US was experiencing back in 2007 as the housing bubble peaked (roughly $2.5 trillion) - and China’s economy is obviously quite a bit smaller than that of the US.
In a statement that followed the data release, the PBOC said that the government’s stimulus package was showing initial results, and reiterated its commitment to “moderately loose monetary policy.” It also pledged “ample liquidity” to “ensure money supply and loan growth meet economic development needs.” China obviously intends to keep this party going if it can.
Meanwhile, we additionally learned that China’s foreign reserves grew to $1.9537 trillion in the first quarter. But that was also the slowest pace in 8 years, as reserves grew by just $7.7 billion versus the record-breaking $153.9 billion in the first quarter of 2008. A slower pace of reserve growth obviously means that China is buying fewer Treasuries - which means the Fed will be forced to buy even more US government debt going forward if it wants to keep bond yields in their current range.
Tonight we’ll get China’s first-quarter GDP data. Should China shock the world with a recovery in GDP and a renewed trend of growth versus the expected continued contraction in GDP, it could potentially be a catalyst for not only commodity prices (especially gold) to surge, but for the dollar to fall broadly as well. After all, if there’s a source of growth in the world to invest in (in this case, China), there’s no reason to expect capital to sit in zero-yielding US Treasuries. Thus, anything that's positive for Chinese growth should, in general, be negative for the dollar and positive for commodities (and gold, I'd think).
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That being said, I still wish there were more professors discussing the metals, as much as they discuss the other fake Gold-- GS....
C'mon Toddo-- lets get more professors that specialize other area too-- MV does a great job covering equities, but not so much commodities, whether precious or otherwise.
It is common knowledge within the upper crust of the Chinese society that the real statistics, even per se far from reliable, are not published without being approved or modified by an internal top level censorship office, headed by Mr. WEN. Concretely, the 1Q GDP really calculated was 4.7%, but
"increased" to 6.1% by this office !!!
Further, to inject some optismism, a very substantial portion of the Stimulus was directed to enterprises with already a large overcapacity, but owned by wealthy people friendly to the government, which agree, instead to invest internally, to use these funds to buy "cheap" stock and bonds, which together with direct purchases by government organs accounts for the positive performance of the mainland and HK markets.
