Taps Coogan – July 4th, 2021

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Leland Miller, CEO of China Beige Book International and one of the best informed observers of China’s economy, recently spoke with Bloomberg to warn that China’s credit tightening is much stronger than most realize. He notes the consumer credit growth is the lowest he’s ever witnessed.

If you have trouble viewing the interview, try here.

 

Some excerpts from Leland Miller:

“It think the biggest misconception (about China), is the degree to which credit is really being strangled right now and CAPEX is down… When you look at our quarterly credit reports, you’re seeing record lows in everything, all the big categories: overall borrowing, borrowing by state firms… It’s hard for people to understand the degree to which China is really squeezing the credit spigot right now. This is not the deleveraging claims of the past…”

“For years there’s been an understanding in Beijing that they need to pull back on this extraordinary stimulus all the time everywhere type of mindset where everything was backstopped, firms weren’t allowed to fail, and products weren’t allowed to default. I think that there is some real anxiety in Beijing that they are… nearing the end of the line of being able to do this. In the West everyone believes China can stimulate forever. In Beijing there is more anxiety. They are going to have to figure out how much of a slowdown they can stomach, particularly going into an important political year…”

On Hong Kong political developments, he notes:

“I think this idea that Hong Kong is this international center of commerce, that’s just not true anymore and it’s going to get worse and worse as authorities use the national security law to just weed out any evidence of dissent or evidence of push back against the Communist Party back in the Mainland.”

In light of the squeeze on China’s credit, recall the strong correlation between the Global Manufacturing PMI and the Chinese Credit impulse. It certainly looks like the stars are aligning for quite the global economic hangover this Fall/Winter. 

There is more to the interview, so enjoy it above. 

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