China Is About to Open the Credit Taps Again

One of the biggest levers in the global economy is being pulled. China's credit data lands Tuesday, and new bank loans are expected to jump to roughly 1.95 trillion yuan from just 520 billion the month before, with total financing forecast to nearly double. When Beijing pushes credit into the economy at that scale, the effects reach far beyond China.

Credit is how China stimulates. Rather than sending cheques to households, Beijing typically directs banks to lend more, funnelling money into infrastructure, property and industry, so a sharp rebound in new loans is the clearest sign that the authorities want growth to accelerate. The size of the expected jump suggests a deliberate push. The taps are being opened on purpose.

The global read-through runs through commodities. Chinese construction and manufacturing consume enormous quantities of copper, steel, oil and other raw materials, so a credit-fuelled expansion tends to lift commodity prices worldwide, which matters especially now, with oil already surging on the Gulf war. A stimulating China and a war-hit oil market pull in the same direction. Inflation gets another push.

It also says something about China's own condition. Governments do not flood the system with credit when things are going well, and a jump this large implies domestic demand is weaker than Beijing would like, with property still troubled and consumers cautious. The stimulus is a symptom as much as a solution. Strength does not need this much help.

The honest caveat is diminishing returns. China has leaned on credit expansion repeatedly, and each round has produced less growth and more debt, with much of the money ending up in projects that never earn their cost. A number in the data does not guarantee activity in the economy. Lending is not the same as demand.

So the world's second-largest economy is reaching for its familiar tool at exactly the moment inflation is stirring again. A near-quadrupling in new loans, commodities primed to respond, and a global economy already dealing with an oil shock. Beijing's stimulus used to be the world's safety net. Now it may be one more reason prices keep rising.