This translated summary of China’s 2Q monetary report is definitely worth reading for this:

“What’s new? The Central Bank is no longer referring to its monetary policy as tight. The last quarterly report, in May, said the central bank would “place a higher priority on containing price rises and curbing inflation, and implement a tight monetary policy.” This report omits the reference to a tight policy, and says the bank will “make its top macroeconomic priorities maintaining stable and relatively fast economic growth and preventing an excessively fast rise in prices, with curbing inflation put in a prominent position.” The new language is identical to the phrasing other government outlets have been using for the last few weeks, and confirms the policy shift made when the central bank raised lending quotas for the year.

Now just because a government decides to turn on the printing presses does not mean the economy will keep growing (see: Japan in the 90s/the U.S. right now). Still, via infrastucture spending/ state-owned companies, China has more control over its economy than most. Interestingly, China’s stock market did not respond postively to this and fell another 5% on Monday. This bears close watching for us, as Canada’s economic success bears close correlation with China’s continued appetite for global commodities.

PS – this report is particularly interesting in light of this excerpt on Michael Pettis’ latest China posting:

On a related note I got an interesting email today from one of my former Peking University students. He says (with some editing on my part):
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“I just talked to a friend in a city in the south. Interestingly, he tried to pay back his mortgage loan last week, and get another 3 year loan again (many entrepreneur there rely heavily on this kind of financing as working capital, sometimes, from informal banks of course). However, he was told that the term of next loan had to be just 1 year instead of the usual 3 yrs, and he has to go through the application process again every year.”

Collapsing property and other assets prices in some cities like Shenzhen seem to have made banks cautious of a probable rise in default risk, and the tightening will hurt these small enterprises further.

I don’t know how widespread this shortening of maturities is, but a common problem in banking is that when risks are perceived to have risen, lenders often respond (rationally, in the case of each individual bank or investor) by readjusting their portfolios in ways that increase overall riskiness in the system.