Chinese PMI Data Confirm Slump in Copper and (Most) Chinese Economic Indicators Save Debt Balances

The just released Chinese PMI number was disappointing, to say the least. The “flash” PMI data show a fall from 47.3 in August to 47.0 in September, the lowest level since early 2009, and highlight that the conspicuous slowing of the Chinese economy is still very much in play. Allow us to not go out on a limb and point out that the weakness in copper prices (highlighted in our daily financial market wrap) has been telegraphing this move since 2011, as chart 1 shows.

What is really troubling though, is not the level of Chinese growth (it’s in the cards that Chinese growth is going to slow dramatically over the coming years as it rebalances its economy), it’s that bank issued credit is actually growing at the fastest rate since 2012. Why is this a problem? It’s the only important indicator of the Chinese economy that is rising, meaning that debt balances are rising in the face of a slowing economy (chart 2).  Amid slowing industrial output (chart 3) and retail sales (chart 4) and outright declining FX reserves (chart 5), it could be that China is playing the credit card (pun intended) once again in hopes of stemming the both slowing growth and capital flight. From a purely mathematical perspective, that is an unsustainable situation to be in.

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