In the previous article, we introduced the "Currency Cycle":
Liquidity Analysis: Changes in the Monetary Cycle and China's Monetary Cycle Today we will talk about what is the credit cycle.
When it comes to the economic cycle and the monetary cycle, we can intuitively understand its meaning: one is the indicator cycle that reflects the quality of the economy, such as GDP growth;One is an indicator period that reflects the amount of money on the market, such as the amount of money and the velocity of money.
But what is the credit cycle?There seems to be some definition that is difficult to define exactly.
We all know that the credit system is at the heart of today's financial system. The premise of all credit and financing activities is "credit". The bank lends money to Company A because Company A has "credit" with the bank, and based on this "credit", the bank believes that A will repay the principal and interest at maturity. Without "credit", there would be no loans, no investment and financing, and no finance.
Therefore, we usually define the "credit cycle" as:Cyclical changes in the expansion and contraction of financing in the real sector. There is not only the expansion and contraction of the amount of financing, but also the contraction and expansion of the difficulty of financing (on **).
The amount and difficulty of financing are affected by both the amount of money available in the market (supply side) and the degree of economic prosperity (demand side). SoThe "credit cycle" is the "gas bag" sandwiched between the "monetary cycle" and the "economic cycle", and it is also the "only way" on the way to the transmission of monetary policy to the real economy
To observe the credit cycle, economists and researchers construct various indicators:
There are observations on the growth rate of loan scale expansion - the year-on-year growth rate of new loans or loan balances;
There is an observation of the leverage ratio of each sector - the balance of loans by sector GDP;
There are observations on the difference in the rate of asset expansion between commercial banks and monetary authorities: total assets of commercial banks and total assets of central banks
There are observations on the scale of social financing - the year-on-year growth rate of social financing scale or new social financing
This article is more inclined toThe scale of social finance is used to observe the overall credit cycle of the society。The main reasons are as follows:
(a).Compared with loans, social finance conceptually encompasses more financing methods. RMB loans account for only about 60 to 65% of the scale of social financing.
(b).In contrast to leverage, leverage is affected by the economic performance (GDP) in addition to the demand for "financing" itself.
When we look at the "credit cycle", we want to exclude upstream and downstream (monetary and economic) influences as much as possible, and observe the cyclical changes of credit itself.
While we know that observing credit is inevitably influenced by money and the economy, at least from the perspective of data selection, it is important to minimize interference.
Therefore, I don't want GDP to be included in the indicators I watch.
(c).Compared with the total assets of commercial banks and the total assets of central banks, the scale of social financing reduces the impact of the "monetary cycle".
In the previous series of articles, we mentioned that the process of the central bank's balance sheet shrinkage and expansion is actually the process of the central bank** and the release of money.
Therefore, the indicator of "total assets of commercial banks and total assets of central banks" contains "monetary volume", and we still try to reduce interference.
In addition to the selection of indicators, we also need to consider which dimensions of the credit cycle to observe:
Since the credit cycle reflects the contraction and expansion of "real sector" financing, we need to look at least the components of the "real sector" separately:EnterpriseResidents；and the "Entity Sector".Overall
Let's take a look at each of them.
Scale of social financingRepresenting the total financing scale of the real economy, the top three main components are RMB loans, corporate bonds, and ** bonds. For more information about social finance, see my previous article: The scale of social financing – an indicator that reflects the strength of financial support for the real economy
It can be seen that both the growth rate of social financing stock and the year-on-year growth rate of increment show cyclical changes.
In general, the growth rate of China's social finance scale is characterized by rapid and short expansion and slow and long contraction.
After the subprime mortgage crisis, China's overall credit went through four complete stages of expansion and contraction.
The first credit cycle is: 200811 - 2009.11 - 2012.05；Expansion 13 months, contraction 30 months.
The second credit cycle is: 201206 - 2013.05 --2017.03；Expansion of 12 months, contraction of 47 months.
The third credit cycle is: 201704 - 2017.12 - 2020.02；Expansion 9 months, contraction 26 months.
The fourth round of credit cycle is: 202003 --2021.02 - 2023.07；Expansion for 12 months and contraction for 30 months.
At present (December 2023), we are likely to have completed the fourth round of the credit cycle and are starting the expansion phase of the fifth round of the credit cycle.
The lowest point of the fourth round of the cycle is likely to reach the bottom in July 2023 when the local debt risk and the debt crisis of real estate enterprises will be reached, and then China will start a series of actions to reduce the debt management, which is equivalent to a targeted release of water and reducing the difficulty of social financing, especially the financing difficulty of urban investment enterprises and real estate enterprises.
Medium and long-term loans for businessesIt mainly reflects the investment financing needs of enterprises. The speed of its growth rate indicates the amount of corporate financing needs, and also reflects the difficulty of corporate financing.
Why not reflect the credit cycle with short-term loans from businesses?Because the main purpose of short-term loans of enterprises is to meet the "turnover" demand, it is generally less related to the expansion and contraction of credit, and more is the embodiment of short-term currency liquidity.
At the same time, we will also use corporate demand deposits to observe the credit cycle of enterprises. Businesses tend to keep more demand deposits and cash if they have easier access to borrowing and more potential investment opportunities. However, this indicator is only used as an auxiliary observation.
After the subprime mortgage crisis, companies also went through four full credit cycles and are now in the fifth round.
The first credit cycle is: 200812 - 2010.02 - 2012.05；Expansion 15 months, contraction 28 months.
The second credit cycle is: 201206 - 2013.08 - 2016.08；Expansion 15 months, contraction 37 months.
The third round of credit cycle is: 201608 - 2017.11 - 2020.02；Expansion 16 months, contraction 28 months.
The fourth round of credit cycle is: 202003 --2021.02 - 2022.04；12 months of expansion and 15 months of contraction.
The fifth round of credit cycle is: 202205 - 2023.05 - Today;Expansion for 13 months.
It can be seen that except for the "four trillion" stimulus in 2009, the expansion of corporate credit was too fast, and most of the time, although there were ups and downs, the overall growth was moderate.
2015 There was an interesting period in 2017 when corporate deposits grew rapidly, but the number of loans did not grow much. This is mainly related to the emergence of a series of investment opportunities in the society after the 811 exchange rate reform at that time.
The credit cycle of ** is relatively straightforward, because the financing of ** is all obtained by bond issuance, so it is only necessary to observe the growth rate of ** bond balance.
We can see that after the subprime mortgage crisis, ** went through five credit cycles.
The second round of credit cycle is: 200708 - 2008.07 - 2008.12；Expansion 12 months, contraction 6 months. In fact, this round cannot be regarded as the credit cycle after the subprime mortgage crisis, but should belong to the credit expansion in the subprime mortgage crisis, and the main purpose is to resolve: the liquidity risk caused by the spillover benefits of the subprime mortgage crisis in the United States.
The second credit cycle is: 200901 - 2009.10 - 2010.07；10 months of expansion and 10 months of contraction.
The third credit cycle is: 201008 - 2012.09 - 2013.11；Expansion 24 months, contraction 15 months.
The fourth credit cycle is: 201312 --2016.08 - 2021.07；Expansion 32 months, contraction 60 months.
The fifth round of credit cycle is: 202108 - 2022.07 - Today;Expand for 12 months.
We can see that the characteristics of the credit cycle are very distinct, and they are all supported by will. If necessary, you can go on and on, and quickly put it away;It can also be steadily pushed up and slowly contracted;It can even be done at a constant rate without accelerating or decelerating**.
06 Resident Credit Cycle.
The history of China's resident financing (resident loans) is relatively short, mainly after the emergence of commercial housing, and in the past 20 years, with the promotion of "loan to buy a house", it has begun to grow rapidly.
We observe the credit cycle of residents mainly through the growth of "household loans", supplemented by residents' deposits.
It can be seen that after the subprime mortgage crisis, Chinese residents have experienced four credit cycles.
The first credit cycle is: 200812 - 2010.04 - 2012.07；Expansion 17 months, contraction 28 months.
The second credit cycle is: 201208 - 2013.08 - 2015.05；Expansion 13 months, contraction 21 months.
The third round of credit cycle is: 201506 --2017.04 - 2020.03；Expansion 23 months, contraction 36 months.
The fourth round of credit cycle is: 202004 - 2021.03 -Today ;It expanded for 12 months and contracted to 33 months.
The credit cycle of Chinese residents is actually the sales cycle of commercial housing in China. It can be seen that the last fourth round only raised its head slightly, and the growth rate slowed down all the way. This is also because the debt pressure of Chinese residents at this stage is too large, and the room for increasing leverage is indeed relatively small.
07Summary and outlook.
China's overall credit cycle presents:The expansion is fast and short, and the contraction is slow and longfeatures:
The frequency of the corporate credit cycle is more synchronized with the overall credit cycle.
The credit cycle of * is mainly transferred by the will of **. **There is a certain "misalignment" relationship between the credit cycle and the corporate credit cycle。It is also understandable, because the function of ** requires it to carry out "bottom-up" and "counter-cyclical adjustment" to the society when necessary, rather than "adding to the fire" and "adding fuel to the fire". Therefore, when the social credit expansion is too fast, the credit can be suspended for hedging. Vice versa.
The credit cycle of residents is mainly linked to the sales of commercial housing in China. However, in recent years, the real estate market as a whole has been relatively weak, the growth rate of household loans has been declining slowly, and the ability of residents to increase leverage has weakened.
This paper introduces the definition of credit cycle, the observation indicators of credit cycle, and the historical changes of credit cycle in China.
In the next article, we will talk about the performance of various types of assets when the currency cycle and the credit cycle are intertwined.