After declining strongly in November and December, to I think around RMB 60-70 billion a month, new lending in January soared to RMB 804 billion.This is the highest monthly figure in years and more than twice the very high monthly average for 2007 (RMB 303 billion).It also blows out the monthly average for the first quarter of 2007 (RMB 474 billion), the former record period for new lending.To make a quick back-of-the-envelope comparison, even if February and March new lending plummets to the December level, the first quarter of 2008 will still see more new loans than the average quarter last year.I think we may see a new quarterly record set.
The sudden relaxation (to put it mildly) of new lending constraints might be a panicked but limited reaction to the effect of the storm in January, or it may signal that the government has more generally reversed course and has begun easing again.Much of the lending was short term (51%).
Money supply growth also surged in January.M2 was up 18.9%, compared to the 16.5% consensus as reported by Bloomberg.M0 was up 31.2% from last January.This is not as surprising as it seems since a lot of people took out cash for the Spring Festival holidays, and of course a lot of commentators are saying just this.Still, I am still haunted by the image of the man in the old-fashioned shower jerking the faucet back and forth as he alternatively scalds himself and freezes himself.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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January, 2008
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