China's Credit Market Just Did Something It Hasn't in 20 Years -- Here's What It Means for Investors
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Behind the headline number is a deeper chill. Short-term consumer credit is collapsing, with households repaying a net 383 billion yuan of short-term loans in the first seven monthssomething we haven't seen since records began in 2009. Medium- and long-term loans, usually more stable, also took a hit in July. Even corporate borrowing turned negative for the first time since 2016. On the surface, aggregate financing rose 1.2 trillion yuan, helped by strong government bond issuance. But even that missed expectations. The broader read: demand for credit isn't just weakit's deteriorating, even as nominal GDP growth hits its lowest post-pandemic level since data collection began in 1993.
Policymakers appear cautious, but cracks are widening. Beijing just announced interest subsidies on select consumer loans to nudge borrowers back into action. Still, analysts expect real monetary easing won't kick in until Q4possibly more rate cuts or lower reserve requirements. Until then, the economy looks stuck in a loop of deflation and deleveraging. That's not a great setup for risk assets tied to Chinese consumers. Investors in China-exposed names like Tesla (NASDAQ:TSLA) might want to brace for weaker tailwinds from the mainland, at least for now.
This article first appeared on GuruFocus.
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