Zombies and cannibals: The horrors of China’s financial system, charted

Gwynn Guilford in Quartz:

Sneakily but steadily, the Chinese government is pumping torrents of money into its banks. And many trillions of yuan have been flowing into stocks via the interbank lending markets.

Just as interesting, though, is where the cash isn’t flowing. Despite the flood from the central bank, the money geysering forth isn’t making its way into ordinary people’s pockets, their checking accounts, or growth-boosting infrastructure projects. That’s a disquieting hint that China’s $30 trillion in debt is terrorizing its economy far more than the country’s robust 7% GDP growth rate implies.

The first thing to note is the scale of the sums gushing out of the People’s Bank of China. Sources of this largesse include interbank lending, lowering of bank capital requirements—which freed up an estimated 1.5 trillion yuan ($240 billion)—and “innovative liquidity tools” (meaning, backdoor lending to banks).

This money should spur growth. However, Wei Yao, economist at Société Générale, has spotted a curious divergence that suggests it’s not.

The gray line in the chart below shows annual growth in spending on urban fixed-asset investment (FAI) projects—big economy-juicing ventures like building airports, trains, or condos. China-watchers see FAI as the primary indicator of capital spending. While it’s been gradually easing, that outlay is still rising at a brisk 11% annual pace. The pink line, which tracks the annual growth in received funds for these same projects, is what’s worrisome. Since 2014, growth in received funds has been decelerating faster than urban fixed-asset investment. The three-month moving average expanded at a meager 5.7% in June.

More here.