China’s Recent Stimulus Measures and Their Impact on Global Markets
In a significant move, China has recently introduced extensive stimulus measures, marking the largest intervention since the 2008 financial crisis. This surge in stimulus has ignited a rally not only in Chinese stocks but also in risk assets globally, including cryptocurrencies such as bitcoin. Many analysts in the cryptocurrency space are optimistic, with expectations that the combination of Chinese stimulus and potential interest rate cuts by the U.S. Federal Reserve could propel the price of bitcoin (BTC) to reach the $100,000 mark in the upcoming months.
However, caution is advised. BCA Research has raised concerns regarding the sustainability of this risk-on rally, suggesting that the latest stimulus from China may not be sufficient to generate the significant “credit impulses” that have historically driven economic growth and bullish market sentiment. A credit impulse is defined as the flow of new credit issued through loans and other debt instruments, expressed as a percentage of the country’s gross domestic product (GDP). Since the 2008 crash, this metric has been closely monitored by analysts as a leading indicator of economic performance and as a predictor of risk-on cycles globally.
Historically, renewed upswings in China’s credit impulse have coincided with critical turning points in the bitcoin market, often marking the bottoms of bear markets. For instance, during the last major easing cycle in 2015, the credit impulse peaked at an impressive 15.5 trillion yuan, which represented approximately 15% of China’s GDP. This surge was accompanied by a significant rally in Chinese stocks, specifically the CSI 300 index, which more than doubled within six months. In parallel, bitcoin also found a bottom around the $100 mark, leading to a remarkable two-year bull run that culminated in its peak near $20,000 in December 2017.
It’s important to note that since 2015, China’s economy has undergone considerable growth, more than doubling in nominal GDP. Consequently, for the current cycle to replicate the bullish impact observed in 2015, the credit impulse would need to peak at a staggering 27 trillion yuan. Unfortunately, the most recent data indicates that the credit impulse has not reached even half of this threshold, with the latest peak recorded at less than 5 trillion yuan. According to BCA Research, achieving the level of credit impulse needed to drive significant market momentum would require an amplitude that is five times greater than what has been recently observed.
The challenge lies in reversing the current downtrend in the credit impulse. Factors that previously fueled substantial credit growth, such as the booming housing market, are no longer in play. As BCA analysts pointed out, the period from 2000 to 2020 saw an exponential increase in credit driven primarily by a robust housing and construction boom. However, with the housing market cooling and no comparable sector available to absorb the influx of credit, generating similarly large credit impulses has become increasingly difficult.
In summary, while China’s latest stimulus measures have sparked a renewed interest in both local and global markets, including cryptocurrencies, the underlying economic indicators suggest that the potential for sustained growth may be limited. Investors and analysts alike should remain vigilant as they navigate the complexities of these economic shifts, understanding that the historical relationship between credit impulses and market performance may not hold in the current landscape. As the situation develops, the focus will likely shift to monitoring credit trends and their implications for both the Chinese economy and global risk assets.