China's money and financing numbers for August take centre stage today, with an unusual contrast between quite subdued banking activity and soaring government bond issuance. The 1.35tr in new bank lending is actually smaller than the 1.38tr raised in government bonds, which is, I think, a monthly record for government issuance. It means the govt's bond debt stock is up 15.3% yoy at a time when nominal GDP is running at 3.5% on a 12m basis. It means that in August, government deficit-financed spending was a bigger stimulus to China's economy than the banks could manage.
The problem, as always, is that China's government does not raise enough in taxes to finance its responsibilities and ambitions: in the 12m to June, China's total govt revs came to just 17.8% of GDP, and the fiscal deficit reached 5.3%. So its' not entirely surprising that govt bond issuance is soaring. After all, if the banking system isn't going to provide the extra oomph, the government will have to.
