Fresh data out of China suggests that the central government and the central bank's efforts to reduce liquidity in the system are starting to have an impact.
China's M2 money supply went up by 8.8% in the year to October after rising by 9.2% in the previous month. Not only is this lower than market expectations for a 9.2% gain, it is also the slowest annual growth rate since January 1996.
China's total social financing (TSF) - defined by the People's Bank of China (PBOC) as "a money-added concept, indicating total funds the real economy obtained from the financial system over a certain period of time" (or simply, a broad measure of credit and liquidity) - declined to CNY1.0 trillion in October - the lowest level in a year -- from CNY 1.8 trillion in the previous month.
With the reduce liquidity in the economy comes a reduction in lending. New yuan loans provided by China's banks dropped to CNY663.2 billion in October from CNY1,116.0 billion in the previous month - the lowest level since October last year and below market expectations of CNY780 billion.
The lower than expected credit and liquidity data underscore the Chinese authorities' determination to contain excessive leverage and financial risks in the economy. Just a month ago, Chinese president Xi Jinping, reiterated that the government's top priority this year is "financial security" because it is a vital component of national security.
A statement echoed by PBOC governor Zhou Xiaochuan when he warned that China could face a "Minsky moment". Zhou cautioned about the country's "very high" corporate debt and the "need to monitor household leverage quality as it grows".
The reduction in liquidity couldn't have been more perfectly timed for the economy continues to expand greater than the government's growth target of 6.5% this year.
Chinese GDP grew by 6.9% in the year to the March 2017 and June quarter and 6.8% in the September quarter.