From lending to property, everything is trending the wrong way
Markets slipped on a whole bunch of negative data coming out of the Chinese economy this morning.
After exports fell and the Chinese CPI came out deflationary earlier in the week, now there are reports that lending has fallen sharply in China and another Chinese property giant is facing collapse.
Let's cover lending first. In total, Chinese banks only loaned out ~$47 billion last month, which represents a near 90% decline month over month. This is the lowest level of loan activity in China since 2009 and the global financial crisis. While that's a crazy fall, those fears got compounded by China's biggest remaining property developer posting near-apocalyptic updates about their financial situation. Country Garden Holdings released data suggesting that their net loss for H1 2023 could be ~$7.6 billion, while property sales have fallen 60% YoY. After years of boom times in Chinese property, developers are now spending 2023 desperately trying to avoid default.
WHY IT MATTERS
This has gotten to the point where President Biden is calling the Chinese economy a 'ticking time bomb.' Despite encouraging growth from companies like Alibaba and NetEase, the rest of China's economy simply isn't recovering fast enough. The U.S. economy is only in a position of relative strength because so many states ditched lockdown policies so much earlier--as far back as two years ago. The only encouraging sign here is that reopening simply takes time. While China looks bad now, things are only truly bad for them if this deflationary spiral in their CPI continues. One month of deflation is okay. Six months of deflation can become a crisis. While U.S. manufacturing is on a huge upswing, if China cannot jumpstart their economic engine, they might drag down the ongoing recovery in the rest of the world. Buckle up for a wild ride as this develops.