Chinese Banks Are Frantically Cutting Loans Most On Record

Summary

The video delves into the concerning financial and economic landscape of China, highlighting record low bank lending growth, a significant drop in new household loans, and the looming threat of property developers defaulting. Amid these challenges, the government and Communist Party appear to lack effective strategies, persisting in ineffective measures. Xi Jinping's power consolidation is contrasted with the nation's economic turmoil, raising fears of a disorderly economic unwind. The video also critiques the overly optimistic government narratives, contrasting them with the grim realities of China's property sector, banking reluctance to lend, and the broader implications for the global economy.

Takeaways

• 🔥 Chinese bank lending growth has hit a record low, with a significant drop in new household loans, indicating a severe tightening of credit.
• 🚨 Property developers in China are facing a high risk of default, both domestically and internationally, signaling major distress in the real estate sector.
• 📈 The Chinese government and the Communist Party appear to be struggling with effective measures to address the economic downturn, continuing with unsuccessful strategies.
• 💵 Xi Jinping is further consolidating his power amidst this economic crisis, breaking with traditional norms and focusing on strengthening his leadership.
• 🤔 The risk of a disorderly economic unravel in China is rising, with concerns about the effectiveness of government stimulus and the overall financial stability.
• 📉 Home prices in China are falling, with the latest statistics showing a year-over-year decline, undermining optimism for a quick recovery in the property market.
• 💳 Chinese banks are increasingly hesitant to lend, despite government stimulus efforts, raising questions about the health of the financial system and the effectiveness of monetary policy.
• 🏦 Real estate sector woes continue as major developers face financial difficulties, highlighting the deep challenges within China's property market.
• 🔴 The Chinese yuan and government bonds are under pressure, with indications of market manipulation to maintain stability amid economic challenges.
• 📝 The National People's Congress set modest economic growth targets for China, acknowledging difficulties but facing skepticism about attainability amidst ongoing challenges.

Q & A

What recent economic indicators from China have shown a negative trend?

Recent economic indicators from China showing a negative trend include the lowest record of new household loans, a significant drop in bank lending growth, potential default risks among property developers, and a general downturn in the property sector.

How did the Chinese government respond to the economic downturn in its media outlets?

The Chinese government responded to the economic downturn by publishing optimistic articles in state-controlled media, such as the People's Daily, claiming an atmosphere of optimism throughout the country, despite contrary sentiments among the public.

What was the growth rate of China's RMB loan stock and why is it significant?

China's RMB loan stock grew at a 10.1% rate, which is significant because it is a record low, indicating a slowdown in the financial sector and potentially reflecting broader economic challenges.

Why are Chinese banks reluctant to lend despite government stimulus efforts?

Chinese banks are reluctant to lend despite government stimulus due to a combination of factors including the troubled real estate sector, increasing risk perceptions, and concerns over becoming property owners due to bad loans, similar to Western banks during the financial crisis.

How did the property sector's performance affect the Chinese economy?

The property sector's poor performance, including falling home prices and the struggles of major developers, has had a significant negative impact on China's economy, as household spending and savings are heavily tied to this sector.

What is 'total social financing' and its significance in understanding China's economic health?

Total social financing refers to the broad measure of credit and liquidity in the economy, encompassing bank lending, shadow banking, and other financing activities. It is significant because it provides a comprehensive view of the financial health and credit availability in China's economy.

What challenges are Chinese real estate developers facing?

Chinese real estate developers are facing challenges such as falling bond prices, downgrades to junk status, and increasing pessimism about their ability to repay debts, highlighting liquidity issues and overall distress in the real estate sector.

What does the behavior of the Chinese Yuan indicate about the central bank's actions?

The behavior of the Chinese Yuan, being conspicuously stable, suggests that the Chinese central bank, along with policy banks, are likely manipulating the currency to prevent it from falling during a critical time, indicating underlying economic pressures.

How did the National People's Congress address the economic challenges, and what targets were set?

The National People's Congress addressed the economic challenges by setting a GDP growth target of around 5% and other targets related to urban job creation and the joblessness rate. The government also pledged ultra-long bond issuance to support these targets, despite acknowledging the difficulties in achieving them.

What implications does the reluctance of banks to lend have on the potential for a disorderly economic unwind in China?

The reluctance of banks to lend, despite government stimulus, suggests a serious perception of risk within the financial sector. This, combined with the ongoing struggles in the property sector and broader economic challenges, raises the risk of a disorderly economic unwind in China.

Outlines

00:00

📉 Economic Turbulence in China

The video script for paragraph1 discusses the concerning economic trends in China, highlighting record-low bank lending growth, significant drops in new household loans, and the looming risk of property developers defaulting. It criticizes the Chinese government and Communist Party for their lack of effective response, noting Xi Jinping's focus on power consolidation despite the economic challenges. The script mentions the lack of optimism among the Chinese populace, contrary to government propaganda, and delves into the property sector's decline, emphasizing the significance of falling home prices and their impact on the economy.

05:01

🏦 Chinese Banking Crisis and Property Sector Woes

In paragraph2, the focus shifts to the specifics of China's financial woes, particularly the unprecedented drop in household loans and the alarming trends in the property sector. The narrative critiques the Chinese central bank's delayed financial reporting and the overall decline in Renminbi (RMB) loan stock. It underscores the ineffective government stimulus and the banking sector's reluctance to lend, suggesting a deepening crisis. The segment also touches on the broader implications for China's economy and questions the efficacy of the People's Bank of China's (PBOC) policies.

10:03

🏢 Real Estate Troubles and Government Interventions

Paragraph3 elaborates on the struggles of major real estate developers in China, particularly highlighting China Vanke's financial troubles and its implications for the banking sector. The discussion points to government attempts to stabilize the situation, including state-coordinated debt swap talks, and the broader impact on market confidence and liquidity. The script also questions the effectiveness of government interventions and the potential for a systemic banking crisis, drawing parallels with past financial crises in the Western world.

15:05

📊 China's Economic Targets and Policy Uncertainty

The final paragraph, paragraph4, discusses China's economic targets and policy challenges, noting the government's struggle to achieve modest growth targets amid ongoing economic difficulties. The script critiques the lack of transparency and the eroding of political and economic norms under Xi Jinping's leadership. It also mentions the skepticism surrounding China's economic stability and the potential for a disorderly financial unwind, while briefly touching on the cryptocurrency revolution as a contrasting point of optimism.

Keywords

💡Chinese Bank Lending

Chinese Bank Lending refers to the amount of money that banks in China lend out to consumers and businesses. In the context of the video, there's a significant downturn in lending growth, reaching record lows, especially in new household loans. This trend indicates a tightening in the availability of credit, which is a critical factor in financing purchases and investments, ultimately affecting the property sector and broader economic health.

💡Property Sector

The Property Sector includes businesses involved in real estate development, sales, and management. The video emphasizes the sector's challenges, notably developers' risk of defaulting on debts. The downturn in the property market is particularly concerning given its significant role in China's economy, affecting household spending and savings heavily tied to real estate investments.

💡Communist Party

The Communist Party, specifically referring to China's ruling political party, plays a crucial role in shaping the country's economic and financial policies. The video suggests that recent meetings and decisions by the party and government have failed to effectively address the economic downturn, with leadership appearing lost on actionable solutions.

💡Xi Jinping

Xi Jinping, the General Secretary of the Communist Party of China, is portrayed in the video as focusing on consolidating power amidst the economic and financial turmoil. His actions are described as breaking with norms and traditions, raising concerns about the effectiveness and direction of leadership in addressing China's economic challenges.

💡Disorderly Unwind

A 'disorderly unwind' refers to a scenario where financial and economic systems collapse in an uncontrollable and chaotic manner. The video articulates growing fears of such an event in China, fueled by the banking sector's struggles, declining property market, and ineffective government interventions, heightening the risk of a major financial crisis.

💡Total Social Financing

Total Social Financing (TSF) is a broad measure of credit and liquidity in the Chinese economy, encompassing bank loans, shadow banking, and other forms of financing. The video notes a significant decrease in TSF, indicating reduced economic activity and a tighter credit environment, which is alarming for growth prospects.

💡Government Stimulus

Government stimulus refers to measures aimed at encouraging economic growth, typically through monetary and fiscal policies. Despite attempts at stimulus, the video indicates that such efforts have had minimal impact on China's financial system and real economy, highlighting a disconnect between policy actions and desired outcomes.

💡Real Estate Developers

Real Estate Developers are companies that build or renovate buildings and land for commercial and residential purposes. The video underscores the financial distress faced by major developers in China, such as default risks and liquidity issues, which contribute to the broader instability in the property sector and banking system.

💡Global Risk

Global Risk refers to factors that could destabilize the world's economic and financial systems. The video positions China's economic challenges, particularly its property sector woes and banking system's reluctance to lend, as constituting the biggest risk to global stability, underscoring the interconnectedness of economies.

💡Economic Targets

Economic Targets are goals set by a government to guide economic policy and measure progress. In the video, China's government sets a growth target of around 5%, which is ambitious given the current challenges. The difficulties in achieving these targets reflect deeper economic issues, including the property sector's decline and banking system's hesitance to lend.

Highlights

Chinese bank lending growth hits the lowest on record.

New household loans in China have dropped significantly.

Banks are closing their loan books as property developers face default risks.

The Chinese government seems lost on how to address the economic downturn.

Xi Jinping is breaking with traditions, focusing on consolidating his power.

China's economic and financial crisis is worsening, with no effect from government stimulus.

Home prices in China continue to fall, highlighting the property sector's struggles.

RMB loan stock growth decelerates, indicating a deepening crisis.

Household loans see the worst monthly decline on record.

Total social financing in China significantly drops, indicating reduced economic activity.

Banks are hesitant to lend despite government stimulus, raising concerns over their balance sheets.

Real estate developers, including major ones like China Vanke, are under financial stress.

Chinese government bond yields hit a 20-year low, signaling market concerns.

The People's Bank of China faces challenges in stimulating the economy through traditional means.

Xi Jinping's actions suggest he is prioritizing political control over economic stability.

The risk of a disorderly economic unwind in China is increasing.

Transcripts

Chinese Bank lending growth came in at

the lowest on record new household loans

dropped by an enormous amount banks are

closing their loan books property

developers are in danger of defaulting

inside and outside the country a whole

mess of data just came out from China

that just is not looking good somehow

worse than before and at the same time

the Communist party over there and the

government which just had their big

meetings last week they seem utterly

lost on what to do just pumping out the

same things that haven't worked xiin

ping for his part he's still doing all

the crazy stuff breaking with

long-standing norms and party traditions

consolidating his power as if to say

I've taken care of what I need to take

care of so let's just see where all this

economic and financial mess leads us to

the risk of a disorderly unwind in China

I hate to say it is actually Rising here

it's become

non-trivial as the as the situation

continues in the economy as well as the

financial system to no effect from

government stimulus you have to wonder

where all of this is actually going to

go as far as the government is concerned

their first tactic is the same one that

we see all around the Western World and

that is confidence blowing smoke up your

butt telling you that everything is just

fine back on February 2nd in China's

people's daily which is a government

mouthpiece there was an article that

headlined said there is an atmosphere of

optimism throughout the country and you

just have to laugh in fact most of the

Chinese people that were commenting on

their article before the censors shut it

down were saying are you kidding me

because there is not a whole lot of

optimism in China and the recent

statistics we got a whole bunch of it

shows that is absolutely not the case

we'll start with the property sector and

home prices because home prices have not

only been an area a focus for Outsiders

looking at the risks of China and

remember China is the biggest risk to

the global system I keep saying that and

unfortunately the Chinese keep proving

me correct so not only is it the biggest

biggest attention grabber for people on

the outside looking in it's also the

biggest one of the biggest problems in

China's economy as household spending

goes as household savings does which is

heavily tied to the property sector

according to the latest statistics from

the National Bureau of Statistics in

China home prices actually decelerated

to the downside no optimism here month

over month the 70 City price index was

down 310 of a percent which matches the

January decline year-over-year

1.4% minus

1.4% which is the worst since last year

when China was coming out of its

lockdowns and remember reopening was

supposed to have solved all of this

reopening was the magic Elixir that got

China back on track all of its facets

economic as well as Financial well

reopening seems like a distant memory

because it was a long time ago and it

left basically no

imprint before we get too much further

into the mess that is China I didn't

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to Here on YouTube again spring sale

coming up at the end of next week keep

your eye out for that as far as the big

statistics that came out I keep focusing

on China's credit and banking because

that's where everything the rubber hits

the road so to speak and the Chinese

pboc the central bank is supposed to

release its financial statistics report

as well as the total social financing

numbers within a five-day window and

usually they're they're pretty good

about it but they waited until the

absolute last minute this week to report

on these credit statistics which raised

a lot of eyebrows in fact this is the

first time they've been delayed this

long right up until the end of that

window since

2020 and what was contained within these

reports shows exactly L why because the

thought was they're hiding something or

they don't want to report something and

the the numbers that came out show

exactly why that was R&B loan stock so

the total amount of Chinese loans in the

in their own local currency grew at a

10.1% rate which again sounds terrific

but that's another record low and that's

well below the 10.4% record low that was

in January so we're accelerating to the

downside here in overall R&B loan stock

the big one I think is household loans

because household loans of course tied

to mortgages therefore the property

sector and household loans absolutely

smashed minus

59.7 billion R&B which is in my my data

the the worst monthly decline on record

certainly for the month of February it

erases what had been a a pile up of

lending in January which was it looks

like many many households getting in

some of their mortgages before the

golden week holiday in February but when

you put January and February together

you got the increase in January the big

decline in February it somehow works out

to less than last year which was not a

good start for Chinese households

household mortgages therefore the

property sector and it only gets worse

from here because we got the total

social financing statistics including

something called aggregate financing to

the real economy which is China's way of

trying to find out all of the credit

that flows through the system whether it

be through the banks through Equity

through wealth management products or

Shadow banking all of it but aggregate

financing to the real economy in the

month of February

2024 just 1.56 trillion now that's down

big from January which is not unusual

because January lots of credit happens

in January all the best customers get

all the loans and their loan needs for

the year filled out in January's

February though 1.56 trillion that's 50

1% less than last February when the

government was trying to get the economy

on the right foot for reopening and that

didn't even work in terms of just R&B

loans this is the bank lending stuff

banks are not lending this is a theme

that I've come back to repeatedly over

the last six months or so in the face of

so much quote unquote stimulus the

banking system just doesn't respond to

it which has raised a whole bunch of

really bad questions bad scenarios

starting with the pboc and questions

about its transmission mechanism as I

said in the recent video how it puts the

PB on par with all of its Western

counterparts that we all have to

question these Central bank's

transmission mechanisms because when

banks are working in extending loans

central banks look like they're all

powerful institutions when banks no

longer want to do that suddenly central

banks we have to question their

transmission mechanism cuz they're no

longer so powerful at least it's

revealed that they're no longer so

powerful when in fact they probably

never were at any point including the

PB so despite massive stimulus even

monetary stimulus at the end of last

year talked about the MLF you know uh

loans to other depository corporations

which is the primary source of funding

from the PBC to the banking system

Skyrocket at the end of last year

banking system continues to do minimal

as minimal as far as loans

now pboc Governor Pang gong Shang said

well we've got room to do more stimulus

we could do more RR Cuts we can do more

of the other things that we've been

doing that have AB that had absolutely

no effect on the banking system or the

real economy speaking about the growth

targets that came out of the national

people's Congress which I'll get to at

the end of this video pan said you know

what those targets are ambitious but

they are achievable and they weren't

even all that great as far as targets go

just around 5% and there are all sorts

of questions about whether or not

they'll be achievable given all of the

bank the behavior that we see in the

banking system one good thing so far is

we don't see any sign of a real

liquidity event building I've talked

about repo rates and there's something

odd going on in repo which requires a

little bit more study I'll get to that

in a future video but as as as of right

now we don't see repo rate Skyrocket and

you don't see Shyer rate sky rocketing

so the liquidity situation seems to be

relatively stable which is a good sign

however with banks refusing to lend and

we'll get to a reason get to why that is

that's the bad sign as far as the

economy goes it means their balance

sheets are being constrained by some

factor a combination of factors likely

risk perceptions our perception of China

as the biggest risk to the global

economy seems to be validated by from

inside the economy by Chinese

Banks a huge reason why Chinese Banks

don't want to lend seems obvious here

real estate developers the property

sector the major developers continue to

have all sorts of trouble including a

name that came up just recently and I

did a video on this called CH called

China vany and China vany was at least

it was one of the last investment grade

property developers over there and it's

a huge developer even bigger than ever

brand and Country Garden because of its

status the the Chinese government has

been let's just say interested in making

sure that it doesn't default in fact

isn't just the Chinese government

interested the Chinese government is one

of its largest shareholders but just

recently the value of its bonds

especially its dollar bonds trading

outside the outside of China have

plummeted the long-term bonds have

plummeted because the market is be is

becoming increasingly pessimistic about

China vany ability to pay back all of

its debts liquidity does seem to be a

rising issue Moody's just recently down

did in fact downgrade the company to

junk status but S&P and Fitch they still

have vankey as one notch above junk and

investment grade and it's likely they're

going to downgrade it too so there'll be

another Fallen Angel over there in China

but as far as Chinese banks are

concerned this is what might be

concerning them in fact I'm sure it is

Vani whose major shareholder is a

state-owned firm based in Shenzhen has

been seen as a bellweather for

government support of major developers

the company received rare backing from

local regulators and officials last year

following a drop in its bond prices over

worries about the nation's alien

property sector this is just a couple

days ago the developer is in state

coordinated talks with banks on a debt

Swap and its major creditor creditor

banks are said to be considering a plan

to swap Bond Holdings worth tens of

billions of Yuan

in principle into secured debt this is

what Bloomberg is reporting so if you're

a Chinese Bank a major bank and the

government says hey you're going to work

with us on this major uh China vany this

major state-owned firm or partially

state-owned firm you're going to work

with us to make sure that the debt that

that debt continues to get service and

and the company continues to get funded

you're looking at a whole bad a lot of

bad prospects and so as a Chinese Bank

you're thinking I'm going to have to do

that with this company am I going to

have to do it with this company I'm

going to have to do it with this company

I better start becoming more and more

defensive because I'm going about to

take a whole lot of bad loans onto my

books and somehow try to work them out

now they say this this debt swap is uh

swapping billions and bonds into secure

debt which is not necessarily all that

much better because that would just mean

you end up with collateral that's likely

IL liquid that maybe you end up having

to manage are Chinese Banks about to

experience what us and European Banks

did 16 17 years ago by becoming Property

Owners that's not a good sign or a good

development for them either so as you

look into this real estate mass in the

economy that continues to not respond

it's understandable why Chinese Banks

would say thanks but no thanks to all of

the stimulus from the pboc and the

government of course with all of this

going on the financial markets remain

well somewhat of a mess China's Yuan the

currency is quite conspicuously and

suspiciously stuck just above $720 to

the US dollar it's been around 719 since

February 2nd straight through the golden

week and on afterward it managed to rise

to the 718s which is a tiny bit March

18th through the 13th so earlier this

week but right back to 719s the past two

days which says Chinese Central Bank

along with the big policy banks are

likely manipul ating the currency

because they realize without their

support the currency would be falling at

a particularly thorny time in China's

struggles against all of these problems

they don't want the currency falling

because they know the currency would

fall which as we know around here at

Euro doll University CNY down equals bad

well CNY sideways equals just as bad and

it's it's extended into the Chinese

government bond market I noted recently

how the 10-year Chinese government Bond

central government Bond had a 20-year

low yield of 236 that was earlier in

March that backed up just a little bit

since then it was 245 as of the 12th of

March a couple days ago and even today

it's around down around about 242 so low

yields in Chinese government bonds which

means the same thing there as it does

everywhere else that's not stimulus it's

not a good sign growing demand for

safety and liquidity that goes along

with Chinese banks that don't want to

lend they're the ones buying all of

these safe and liquid

bonds China's national people's Congress

that wrapped up I think earlier this

week it was held mostly last week and it

was a complete crap show they came out

with their target for the Chinese go for

the Chinese economy this year of around

5% but Premier number two Lee Kang said

it's not easy for us to realize these

targets we need policy support support

and Joint efforts from all fronts around

5% remember Chinese Chinese GDP used to

grow steadily in double digits there was

a time when it got below 7% everybody

was panicking you used to think that

back in the uh middle 2000s that

anything less than 8% counted as a

recession in China now they're shooting

for around 5% for the second year in a

row realizing it's going to be much

harder to achieve that Target because

they won't have the base effects of last

year carried over to this year and it

wasn't just around 5% GDP there's also

other targets they come up with Urban

job creation was over 12 million which

was somewhat of an upgrade to around 12

million that was Target last year the

joblessness rate around

5% um and to help achieve these targets

that Pang gang xang was said were

achievable the government pledged an

ultra long Bond issuance of 1 trillion

CNY which is only the fourth time in the

last 26 years the Chinese have done

something like that which sounds like

hey the Chinese government's really

stepping up here but it's really

basically all the same stuff they're

coming up with rate cuts and Government

Bond stimulus and spending and all the

stuff that they've been doing all along

that hasn't worked because it doesn't

sound like they know what they're going

to do sounds like there's more

uncertainty at the party and policy

level than there is even in the

marketplace and one note about that Xian

ping has continued to completely erase

some of the norms and traditions of

these policy Gatherings as well as to

stamp his own name over everything

including a lack of a third plenum That

was supposed to been held last year in

either October or November instead the

third plenum still hasn't happened and

it hasn't does to my knowledge hasn't

even been scheduled yet and the third

Plum is usually where they talk about

the long range reform agenda for China's

economy so that's already alarm an alarm

Bell and even at the national people's

Congress last week number two Lee Kang

was supposed to have a press conference

that has been a 30y year or near 30-year

tradition in China and it didn't happen

either Lee Kang no press conference no

word and the press conference was the

one time that the Chinese media got to

ask questions on the economy from a

senior level Chinese official so again

it looks like the econ as far as the

economy goes

it doesn't seem as if the Chinese

government really knows what they're

going to do here at the same time xiin

ping is like screw this I know what I'm

going to do I've been engaging in these

purges I've been planting loyalists all

over the party and therefore the

government I'm not necessarily as

concerned about the downside here

because I've covered my behind well the

Chinese banking system the Chinese

economy those outside of China who look

at China as rightfully as the biggest

risk to the to the world don't don't

have the luxury of babbe xiin ping who's

Consolidated his power already of

sitting back and saying oh okay let's

just see where this goes that's

certainly the message the banking system

is sending so as I said China is the

world's biggest risk and data point

after data point month after month

policy Gathering after policy Gathering

they continue to prove that to be

correct so as China is the L largest

risk I hate to say it the risk of a

disorderly unwind has actually grown

it's become material because the when

the banking system refusing all

invitations that are probably not so

polite from the government it tells you

just how serious they see the situation

the real estate sector households are

not borrowing banks are not lending the

real estate is the real estate issue is

not going away it is getting worse home

prices falling and this is in the face

of all the stuff Beijing has come up

with so far so where is all of this

going well we can't say for sure we

cannot rule out a disorderly unwind

unfortunately I wish that wasn't the

case but as I said they keep proving

that it

is looking ahead looking much farther

ahead at more optimistic monetary stuff

the crypto Revolution the real one I

just had a really good conversation with

Andy Bromberg about just that and that's

that's the video link below as always I

thank you very much for joining me huge

thank you your University members and

subscribers and until next time take

care