All good things come to an end
China’s government has acknowledged the earlier pace of credit growth was unsustainable and after undertaking another economic stimulus program in 2015, which pushed credit growth to over 20 per cent, it has now more than halved to 8 per cent.
Such dramatic swings in credit growth will inevitably be important for the economy and markets.
The best way to look at this is how much the growth of credit changes, rather than simply the pace of growth. This is commonly referred to as a “credit impulse” measure.
Jon Anderson of Emerging Advisors Group calculates a series for China which looks at the changing growth of credit relative to the size of the economy.
It shows a dramatic rebound in growth in 2008, followed by a slowdown that troughed in 2014 before another dramatic rebound and sharp slowing in recent years.