The phenomenal credit expansion in China has taken many forms and has
accomplished many phenomenal things, from building entire ghost cities to
turning ambient air into a toxic cocktail. In the process, the credit bubble
turned China into the second largest economy.
Some of this freshly created money has been spread around. Hence, the
growing middle class. Those with significant accumulation of wealth are
trying to get some of it out of China before it all blows up or before the
corruption crackdown or a purge or some other business misfortune takes it
all down.
In China’s state-controlled system, credit expansion is largely done
by state-owned banks that have to keep lending no matter what. Then there’s
the increasingly important shadow banking system. And finally, the People’s
Bank of China – and no central bank is a match for it.
The chart below compares the growth of the balance sheets of the
major central banks, starting in 2003, when the index was set at 100. While
the other central banks – except for the ECB – kept their balance sheets
nearly level between 2003 and the Financial Crisis, the PBOC’s balance sheet
(top orange line) ballooned. By the time the Fed (yellow line) and the Bank
of England (red line) made their moves in 2008 to bail out
toppling megabanks, other financial institutions, and the largest
investors in the world, the balance sheet of the PBOC had nearly quadrupled.
Note the tiny Swiss National Bank (purple line) which is desperately
trying to defend its franc cap by buying euros and dollars and selling newly
printed francs. It works, but for how long?
And note the Bank of Japan (green line) at the bottom. In 2003, after
years of QE, its balance sheet was already relatively large, but in 2012, and
particularly in early 2013, it set out on a record-setting binge, from an
already large base.
#China is leading,
others are bleeding: People’s Bank of China has expanded balance sheet more
than any other nation. pic.twitter.com/rEUS9z01oE
—
Holger Zschaepitz (@Schuldensuehner) November
18, 2014
No central bank – not even the Fed with its heroic efforts at the
printing press – is a match for the PBOC. Its balance sheet has
maintained that number one position in terms of growth since 2003. Its
expansion continues unabated and with renewed vigor. It makes the heroic Fed
look like a bunch of amateurs.
But there are cracks in the veneer. Once soaring gaming revenues in
Macau, the world’s largest gambling hub where the Chinese go to bet and
funnel their money around China’s capital controls, are plunging faster than
during the financial crisis. This indicator of the Chinese economy is
flashing red. Read… What
the Heck is the Deal in Macau?