The big banks of China are still writing plenty of new loans, which is good for the growth bulls but not a great indication that Beijing’s inflation-fighting efforts are working.
Last night’s numbers reveal that new yuan-denominated lending accelerated in June to reach 633.9 billion yuan ($98 billion) in fresh loans.
Since this represents 15% more money moving into the Chinese economy during the last month, traders looking for signs that growth is alive and well were gratified.
In fact, net Chinese money supply surged 16% since May.
These increases counter the arguments that China is successfully fighting its inflation problem.
The People’s Bank of China has already raised interest rates several times this year and forced the country’s biggest bankers to keep a record 21.5% of their assets in reserve to slow the pace at which money is moving through the economy.
Inflation remains stubbornly on the rise, cracking its highest level since the 2008 credit crash last month.
It may be a good to ask just to whom the banks are lending, if they need to keep so much of their money locked up.
Either way, Beijing is now taking new steps to stabilize prices — including subsidizing the market for pork, a Chinese dietary staple — and economists expect at least a few more rate hikes ahead.
Higher rates should ultimately play into upside for the yuan (quote) and yuan-oriented currency ETFs — of which the WisdomTree Dreyfus Chinese Yuan ETF (NYSE:CYB), and Market Vectors Chinese Renminbi/USD ETN (NYSE:CNY) are the most prominent:
And if growth is alive and well in China, broad-based industrial equity funds like the iShares FTSE China 25 Index ETF (NYSE:FXI) might perk up.
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.