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Chinese Credit Keeps Growing To Support Infrastructure Investments

By ING Economic and Financial Analysis (Iris Pang)Market OverviewOct 15, 2019 08:10AM ET
www.investing.com/analysis/chinese-credit-keeps-growing-to-support-infrastructure-investments-200473431
Chinese Credit Keeps Growing To Support Infrastructure Investments
By ING Economic and Financial Analysis (Iris Pang)   |  Oct 15, 2019 08:10AM ET
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The growth in Chinese credit tells us that the government has continued to issue local government bonds to finance infrastructure projects to support growth in 3Q19. How long will this debt piling continue?

China credit expands - again

M2 - a widely used gauge of credit expansion, increased to 8.4% year on year in September from 8.2% a month ago. Renminbi loans grew by CNY 13.9 trillion in the third quarter, which is equivalent to around 14.5% of nominal GDP of four quarters from 3Q18 to 2Q19.

What's behind the credit growth?

Among all the items, the most eye-catching is the CNY 2 trillion increase in local government special bonds in the third quarter used to finance infrastructure projects. The quota for these bonds was only CNY 2 trillion, and this entire quote was used just in 3Q alone.

The substantial increase in local government bonds shows us that the economy has relied on infrastructure investments to support GDP growth.

Will debt continue to pile up?

We expect there will be another CNY 1 trillion increase in local government special bonds in the fourth-quarter as the central government has allowed local governments to borrow next year's issuance quota.

This is why we think China will continue to pile on the debt until the US-China trade war ends and during this time infrastructure investments will continue to be the main pillar of economic growth.

Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

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Chinese Credit Keeps Growing To Support Infrastructure Investments
 

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Chinese Credit Keeps Growing To Support Infrastructure Investments

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Comments (1)
Suat Can Şimşek
Suat Can Şimşek Oct 15, 2019 6:52PM ET
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Thanks, Ms. Pang
 
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