China’s credit metrics
Financing, or the level of credit available, is crucial to growth, as it stimulates consumption and investment in an economy. By tracking credit growth in China (MCHI), investors can gauge patterns that forecast future demand.
Aggregate financing measures liquidity by adding the total funds provided by a financial system to nonfinancial sectors and households. China’s aggregate financing stood at 1.6 trillion in December 2016 compared to the median estimate of 1.3 trillion.
New yuan loans increase
According to the PBOC (People’s Bank of China), new loans issued by Chinese banks in December 2016 totaled 1.0 trillion Chinese yuan, higher than 794.6 billion yuan in November. However, economists are expecting lower mortgage lending going forward as authorities clamp down on the housing price bubble.
M2 money supply down
The broad money supply rose 11.3% YoY (year-over-year) in December 2016 against 11.4% in November. The M2 money supply includes cash, checking deposits, savings deposits, money market mutual funds, and other time deposits.
Month-over-month, credit metrics in China have been quite volatile. However, in 2016, overall loan growth and aggregate financing growth remained strong, indicating that the PBOC was extending its support to the Chinese economy.
Going forward, however, credit growth may slow a bit as policymakers resort to tightening measures to contain the asset price bubbles. Goldman Sachs (GS) believes that China’s reliance on credit growth could be a key risk in 2017.
If the Chinese government keeps its policy less supportive in the future, pressure could return to steel mills and seaborne iron ore players. Affected players would include BHP Billiton (BHP) (BBL), Rio Tinto (RIO), Vale (VALE), and the Asia-Pacific division of Cliffs Natural Resources (CLF). BHP accounts for 6.3% of the iShares Commodities Select Strategy ETF (COMT).