Iron Ore inventories to the roof; steel production still ramping; food and energy prices soaring; economy deteriorating rapidly. So why no major stimulus from the PBoC? Too busy in-fighting or perhaps waiting on The Fed or The ECB to rescue us all; we suspect neither of the above. This chart, via Goldman Sachs, indicates the relative looseness of financial conditions (easing / tightening) compared to China’s current activity. These two proprietary indicators provide a ‘cleaner’ view of the various aspects of China’s monetary/fiscal policies (from fiscal stimulus to RRR hikes or reverse repos) and its ‘real’ level of economic growth (unbiased by political need). As is extremely evident, since the initial collapse and huge stimulus in 2008/09, the PBoC has become less and less capable of generating any additional economic activity. Whether this is due to the same shadow-banking effect Europe and the US suffer from in their transmission channels; or more simply that the Chinese may have also hit their bubble-created balance-sheet-recession debt-minimization limit (no matter how mandated from the top-down that spending is).
Goldman Sachs’ China Financial Conditions Index vs. China Current Activity Index…
One lesson seems clear – as the impact of easing was also failing into the crash of 08/09 – for China, it’s go big or go home as nuanced management of liquidity is just not cutting it (and never did); and we remind readers that ‘going big’ is very unlikely given the already-inflationary environment and bubbly real estate market they find themselves lumbered (pun intended) with.
Source: Goldman Sachs