What Tightening? Chinese Property Accelerates Higher As Money Supply Explodes

China Roller Coaster

We’re still waiting to see substantive effects of Chinese efforts asset markets.

China’s January loan growth has come in at 1.39 trillion yuan, which while down 14% year over year, accounted for more loan growth than the preceding three months combined. (Note though that Chinese banks tend to front-load their lending into the beginning of the year)

January loan growth is already nearly 20% of the governments 7.5 trillion yuan loan growth target for the full year. In one month.

Property prices are rising faster than during any month in nearly two years. The funny thing is that China’s reported CPI (consumer price index, inflation) remained tame at just 1.5%, slowing from 1.9% and missing expectations of 2.1%. Meanwhile, the stock market remains below its 2009 peak.

Perhaps property is capturing a larger share of liquidity these days:

Bloomberg: Property prices in 70 cities rose 9.5 per cent in January from a year earlier, the National Development and Reform Commission said today. Producer prices climbed 4.3 per cent, the most since October 2008, the statistics bureau said.

M2, the broad measure of money supply, rose 26 per cent from a year earlier. Inflation weakened as food prices rose at a slower pace. Last month’s economic data was distorted by a Chinese lunar new year holiday that fell in January in 2009 and in February this year.

Some believe that February loan growth could fall below 1 trillion yuan, partly due to fewer working days from the Chinese Lunary New Year. Still, even if February loan growth comes in at just 1 trillion, this would still make January and February loan growth already one-third of the government’s full year target. The problem with Chinese tightening efforts could be that expectations of government tightening has made lending efforts throughout the economy even more frantic:

Reuters: “However, expectations of gradual monetary policy tightening this year will push banks to continue rushing into lending as early as possible in the year.”

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