Image alt tag

Error!

There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.

Error!

We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Error!

We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.

Reset Your Password

Financial Professionals*

Your password must be a minimum of characters.

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.

OK

 

Economic Insights

Can the world’s second-largest economy remain robust as the pace of lending slows?

China’s torrid economic growth over the past decades has been fueled in part by a robust expansion in lending. Now, however, total credit growth in China is slowing down. The world’s second-largest economy is also shifting away from “shadow” banking—trust loans, intra-company loans, and trade credit—back to loans made through the regulated banking system.

 

Chart 1. China’s Loan Growth Slows
Year-over-year percentage change in augmented total social financing (as defined) and bank loans, January 2005–December 2017

Source: Bloomberg, WIND, and Lord Abbett. Total social financing (TSF) refers to the total credit growth among financial institutions and fixed-income markets; in this instance, it is augmented by adding debt issued by local governments and swapped for bank loans back into TSF.

 

While credit and bank loans are still growing more rapidly than the nation’s nominal gross domestic product (which the government projects to have expanded at a 6.9% pace in 2017), the credit intensity of China’s GDP growth is declining. (Credit intensity refers to the ratio of new credit to incremental GDP growth in an economy.)

 

Chart 2. Chinese Economic Growth Is Less Dependent on New Lending
Flow of new social financing as a percentage of gross domestic product, January 2005–December 2017

Source: Bloomberg, WIND, and Lord Abbett. Total social financing (TSF) refers to the total credit growth among financial institutions and fixed-income markets; in this instance, it is augmented by adding debt issued by local governments and swapped for bank loans back into TSF. Headline TSF is unadjusted.

 

Many analysts believed that a decline in credit intensity would go hand in hand with a sharp slowdown in China’s real (inflation-adjusted) GDP growth. Instead, 2017 was a year when real GDP growth accelerated. Thus, so far, a slowdown in credit growth and a reallocation among lenders hasn’t prevented the Chinese economy from steaming along nicely. It may be that growth in China will surprise to the upside in 2018, even as the economy reorients away from its dependence on the real estate and housing sectors.

 

The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise.

Forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

This article may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education.  No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as Lord, Abbett & Co LLC (and its affiliates, “Lord Abbett”) is not undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity with respect to the materials presented herein.   If you are an individual retirement investor, contact your financial advisor or other non-Lord Abbett fiduciary about whether any given investment idea, strategy, product, or service described herein may be appropriate for your circumstances.

The opinions in the preceding commentary are as of the date of publication and are subject to change. Additionally, the opinions may not represent the opinions of the firm as a whole. The document is not intended for use as forecast, research or investment advice concerning any particular investment or the markets in general, and it is not intended to be legal advice or tax advice. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information.

RELATED TOPICS

About The Author

image

Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field