Wednesday, July 16, 2014

China Still Relying on Too Much Debt to Spur Growth (excerpt)

The Chinese government is no longer providing massive economic stimulus to prop up China’s growth rate. Instead, the government is targeting spending in a more rifle-shot approach. That’s the official mini-stimulus story. It just doesn’t jibe with the latest “social financing” data, which show that China’s economy continues to be flooded with credit. It worked in the past, and it should work now. But one day, it won’t work, and the economy could sink rather than float on the sea of credit. Let’s review the latest data:

(1) Social financing rose $320 billion during June. That’s not an annualized number. It is the amount of borrowing by all sectors just during that one month. On a ytd basis, it totals a staggering $1.7 trillion compared to $1.6 trillion over the same period last year.

(2) The totals above include bank loans, which increased $175 billion during June and $934 billion ytd. Chinese bank loans totaled a record $12.6 trillion during June, 64% more than the loans held by US commercial banks.

Today's Morning Briefing: Solid Sales. (1) US business sales at new high. (2) Lots of indicators pointing to 5% revenues growth for S&P 500. (3) Analysts forecasting 5% revenues growth for lots of sectors. (4) Upward revision for consumer spending during Q2. (5) Wages and salaries outpacing inflation by about 2 percentage points. (6) YRI Earned Income Proxy showing solid income growth driving retail sales. (7) Chinese government still flooding economy with credit. (8) Investment advice from the Fed. (9) Yellen is a liberal. (10) Focus on market-weight-rated Retailers. (More for subscribers.)

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