A couple months ago, there was non-stop talk of a stock and credit bubble in China? But it seems everyone’s forgotten that, and now just accept that everything is hunky dory.
Not SocGen analyst Dylan Grice, however.
From his latest report, via FT Alphaville:
In fact, the state-orchestrated inflation of bank credit is reckless (see Chart). Banks which haven’t wanted to lend have lent to borrowers who didn’t want to borrow, yet the money is now flowing into the stock market, into commodity inventories and into property. This raises serious questions over the value of the banks’ collateral.
If we learned one thing over the last few years it was to be suspicious of explosive credit growth. Yet the Chinese threaten to repeat the recent financial mistakes made in the West. No doubt the authorities are confident that no harm will come of such bank credit inflation or that, if it does, they will be able to control what they have unleashed. Unfortunately, this in itself is a repeat of the mistake made by Western policymakers.
This is a point we’ve made — for some reason, people are willing to give China a pass on all kinds of things, from spending, to credit expansion, to subsidizing some industries at the expense of others. Our government gets slammed for it, while theirs is praised for it.