China financing remains slow

Chinese social financing jumped dramatically month on month, although this is not surprising given the usual seasonality.  Compared to last year, total social finance was broadly flat.

With this measure of financing weak in the second half of the year, it these data suggest the credit impulse on growth continues to fade.

These data are a flow measure rather than a stock.  So total credit does continue to grow, albeit at a much slower pace.

There was a noticeable change in the composition of growth in January.  In particular, bank lending  was very strong in January after a sluggish end to 2013.

Wealth management trust loans were also stronger YoY in January, after efforts to slow lending in this category did appear to be making an impact into end 2013.

There is still huge uncertainty about credit quality in this sector, with the prospects of defaults on payments impacting the sector. But so far, this has yet to slow aggregate growth in trust loans.

The big causality of tighter monetary conditions has been corporate bond issuance, which is currently on par with very weak 2012 levels.

This is not a particularly healthy development from the standpoint of developing financial markets in China.  Credit is increasingly being funnelled via more opaque channels like trust products, which are also more difficult to control.

Higher interest rates will ultimately curtail this kind of activity as the risks start to outweigh the rewards as the economy slows.  But this is proving to be a difficult task with interest rates already high.  It also increases the risk of a more severe bust when conditions do weaken.