Written By Basilio Chen

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Watching China’s export number can shine some light on the rest of the developed world status.

Export to European Union in September remains very weak, down 10.7% compared with a year ago. Export to the United States increased by 5% yoy.  In the Mean time, import from Australia is down 18% yoy.

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Source: General Administration of Customs

The trade data for September are better than expected from China’s perspective with export growth on the upside.

The contraction in export from China to Europe is moderating, however export to the rest of the developed world remains relatively weak in general. On the import side, import growth has been below export for the best part of the year, and including September.  This number indicates somewhat the weakness of internal demand. This consistent weakness of domestic demand also shows that trade surplus is 39% higher than the same period of last year.

Comparing Trade Data With Lending and Financing Data

The slight increase in export activity can be analyzed taking into consideraton lending data.

The People’s Bank of China, China Central Bank, published it’s lending and financing data for September.  In general, bank loans are down 13% but other sources of financing is up 33%.

Total total financing for September increased 33% from RMB1.2407 trillion in August to RMB1.65 trillion in September.

Net new RMB Bank loans amounted to RMB623.2 billion in September, down 13% from RMB703.9 billion in August, and below the original September estimate of RMB700 billion.

However, while RMB bank loans growth appears weak, other sources of fund has added to the bank loans to maintain the money supply considerably higher, as seen in the chart below.  These other source s of financing are: corporate bonds, undiscounted bankers’ acceptances, and trust loans (which is part of the shadow banking system).

In particular, financing from trust loans for September increased from RMB118 billion in August to RMB202.4 billion.

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In particular, financing from trust loans for September increased from RMB118 billion in August to RMB202.4 billion, an 82% increase.  Trust loans are higher yield loans and mostly from shadow (non-licensed) banks.  Trust loans were 12.2% of the total aggregate financing for September.

 It appears as if banks are not incentivated to lend and businesses have to resort to higher yield financing sources.