Top Nomura Analysts: China Could Be Spiraling Toward A 2008-Style Credit Crisis

Fears over a Chinese credit crunch have been gaining traction in recent weeks. In a note this weekend Nomura analysts elaborated on a worrisome trend:

• “In order to understand better how serious the problem is, we monitor the bill discount rate, which is the financing cost for firms when they sell commercial acceptance bills to banks for cash. A higher bill discount rate is a signal that the imbalance between supply and demand for credit has worsened. The 6-month bill discount rate has worsened at alarming pace since 2011, rising to above 10%.

• The gap between the bill discount rate and the interbank rate has widened to 5.7 percentage points, the highest level since the data was made available. China’s credit market is becoming more fragmented. Financing costs for firms without access to bank loans have risen much more than those for large stateowned enterprises. The sharp rise in the bill discount rate may be partly driven by property developers who are facing worsening financing conditions given the lackluster sales.”

Data on Chinese credit trends is spotty at best. As I often say, their economy is a black box and the data out of the government is close to impossible to believe/decipher. Regardless, we continue to see red flags. Not a good sign…