FAST FIVE: China Credit Impulse Set To Collapse As Beijing Orders Banks To Curtail Loan Growth For Rest Of 2021

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“Moderate” or not – and the slowest growth in 15 years is anything but moderate in our book – such a slowdown in credit creation would have dire consequences on China's all-important credit impulse which, as we have profiled repeatedly in the past, is arguably the biggest driving force behind global reflation (or disinflation, as the case may be).

This took place shortly after Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, warned about bubbles in the property and financial markets as noted above, fueling concerns policy makers will begin tightening monetary policy.

This result, while logical, is quite significant, as it gives us a playbook for the ebb and flow in Chinese credit impulse.

Looking ahead, with high correlations and short lag times, Chinese interest rate swaps and industrial metals should be the first assets to be adversely impacted by the topping of the Chinese credit impulse.

In the chart below, SocGen provides a critical estimated timeline of the peak Y/Y performance for each of the assets it sees as impacted by China's credit impulse slowdown.

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