FLAT CHINESE BEVERIDGE
EDU DDA Oct. 15, 2025
Summary: Gold keeps flying pressing the copper-to-gold ratio down to more than just a new record low. This is getting utterly insane. Part of that may be bullion is overextending its run, though there are legit fundamental reasons for the price surge. China’s bank situation appears to be deteriorating rapidly along with prospects for an already-beleaguered Chinese economy. All the recent data points to a collision between short run downside acceleration and the culmination of a nearly two decade-long depressionary journey that has China on the cusp of its own flat Beveridge.
IF THAT CAN HAS BEEN SITTING OPEN FOR SOME TIME, IT WOULD APPROPRIATELY BE A FLAT CHINESE BEVERAGE.
It’s strange in a way how no one talks about Beijing’s bazooka. It was the biggest thing ever, the government in China being pushed to finally reckon with an economy that hadn’t been able to pick up after Zero-COVID. Last September’s government performances with their impressive Big Wig press conferences were the CCP’s way of publicly showing they at last “got it.”
Trillions were promised, trillions more were borrowed. There is not surprisingly zero to show for it. The lack of discussion isn’t just related to what is now an inarguable failure. It’s because of that failure in the context of the 2020s and the wider implications, those which are likely a key reason for gold.
Of course, bazookas aren’t new to China. Quite the contrary, they were fairly regular during the 2010s to the point by 2017 Xi Jinping had had enough of them. Exigent circumstances were the reason for the resurrection in the 2020s.
But there is more to this one this time, especially here in the short run. I wrote before how it does appear as though something big has changed over in China – and certainly not for the better. The more months pass the more it appears Beijing has changed tactics and is no longer in the mood to tolerate constant price negatives in the economy.
The latest data continues to point toward that reprioritization and the potentially ugly consequences from it. Bank lending has been at the forefront of the reversal from the very beginning, especially last year. There was something of uptick to begin 2025, but like the artificial tariff frontloading in the real economy the modest lending rebound is gone now, too.
More than gone, it’s reversing hard. The numbers are stark.
It might be hard to fathom, even so China has sort of fallen off the radar more recently being replaced by growing and legitimate concerns over the US labor market transition to flat Beveridge that none other than Jay Powell described himself, as discussed yesterday. But the reasons for gold’s powerful rise are being written as much in Chinese as English or maybe French and Japanese.
No better example of that, and the growing downside dangers, than another and astonishing record low for copper-to-gold.
Gold going too far?
To be perfectly honest, I’m growing concerned about the run in gold here. I had previously gone over silver and its quite obvious supply squeeze component which is being propelled mostly by being the (formerly?) cheaper precious metal alternative. We know how squeezes end and there is more than a little risk silver’s drags gold down into a correction, too, at least in the short run.
Not that it would change the fundamental propositions behind the golden bull. Again, there are way too many deflationary potential hotspots for that to suddenly disappear all at once, even if the gold market may have overextended itself recently. China will remain at the forefront of those concerns, especially with the most recent updates on banks (more below).
Bullion extended its surge above $4200 per ounce, finishing at $4208 in the spot market today. At the same time, copper slid to just under $4.93 per pound at the CME. Doing the math, translating copper to a price per ounce then dividing by gold’s current cost you get 0.007315% and another new record low.
Not just a record, but, well, see for yourself:
Extreme isn’t enough of a description. Remember, this is not really a crash signal so much as it is a deflationary warning about intermediate and longer-term consequences spanning across the global economy, of the very sort which is appearing in the increasingly visible unhealthiness spreading within the Chinese banking sector.
While CtG isn’t a crash signal itself, these low deflationary levels don’t preclude something like one from taking place. In other words, the ratio is more about the aftermath of what comes next from wherever it might be coming.
Like hugely negative swap spreads, CtG down here is both a deflationary warning as well as the markets expressing a high degree of confidence in it. That’s relatively easy to see when the data keeps following along, such as China’s lending.
Bank on this
Back in February, the PBOC’s Total Social Financing numbers had all the right China Watchers abuzz. The loan flows seemed to indicate the bazooka was finally producing, if at a few months’ lag. For January 2025, new RMB loans jumped by CNY 5.2 trillion, significantly more than both expectations and the prior January’s CNY 4.8 trillion. A few brave souls even began speaking about a return of China’s previously vaunted (in theory, not practice) credit impulse.
The data shows that amid pro-growth policy measures, increased bank lending, and a recovery in demand, new yuan loans and social financing remained at a high level at the start of 2025, achieving the expected "good start" for the year, Wen Bin, chief economist at China Minsheng Bank, told the Global Times on Friday.
Along with the implementation of various policies, an improvement in effective financing demand is also expected. Financial resources will increasingly flow into areas supported by policies, such as tech innovation and consumption, as well as other strategic key sectors and weak links, which will collectively support stable and reasonable growth, he said.
Poor Wen might just be another Economist who doesn’t understand the economy, forget banking, or since being an Economist in China where it is illegal to go too far criticizing either, either way the end result was him simply parroting the government line (though that’s indistinguishable from what Western financial media sources do with information fed to them by the Fed and its peers).
None of those outcomes happened, instead quite the opposite. By midyear, loan growth had already slowed. More recently, the data indicates a significant downside acceleration in the summer right along with the ignition of gold’s escape velocity run.
For September, the PBOC puts new loan flows at just CNY 845 billion, less than half of last year’s CNY 1.97 trillion. Even worse, that’s the lowest flow in any September in over a decade. Unlike July, which is a seasonal low point for bank lending, September is an important month when credit should be flowing setting up the final quarter push.
Year-to-date, new bank lending is now more than 10% behind last year, after beginning the year (beyond strictly January) slightly above 2024. But that also goes to show how quickly things have changed within the Chinese sector, flipping from running ahead to now lagging badly behind a year when lending had already crashed by more than twenty percent from 2023!
This midyear slowdown has been exceptionally dramatic, including in the areas targeted by bazooka programs and efforts primarily related to housing/mortgages. From the Financial Statistics Report, new flows into household loans, mainly mortgages, were an utterly pitiful CNY 389 billion last month, also well below last September’s CNY 500 billion.
This is the worst September for household loans since 2015.
Give the Chinese some limited credit (pun intended), despite their power to do so they clearly aren’t cooking these books. It is the key reason why we have confidence in these estimates unlike others – no one would possibly cheat to show what these series show.
No wonder nobody will talk about the bazooka since everyone who did was expecting big things from it, even if not quite thrilled to the extent as poor Mr. Wen. Not only does it further wreck “stimulus” theories, the estimates are way beyond that to the downside.
Managed decline acceleration
China’s National Holiday Golden Week held at the start of every October is usually marked by extensive travel and equally glowing mainstream assessments of the economic impacts. The financial media every year quickly fills with stories alleging record numbers of traveling Chinese consumers will translate into major commercial gains all thanks to whatever “stimulus” previous to it.
Whatever gains there might are always exaggerated and never last long.
This time is already different, though I don’t mean finally deliverable tangible success. Rather, we aren’t even getting the positive holiday estimates to begin with. Another sign “something” has changed this summer within the Chinese economy:
Over the Oct. 1 to 8 public holiday — dubbed “Golden Week” — total domestic tourism trips reached 888 million and generated 809.01 billion yuan ($113.63 billion) in revenue, according to official data released Thursday. That’s up by 1.8% and 7.6% from last year, respectively, according to CNBC’s calculations of the figures.
The gains, however, slowed from the May 1–5 holiday earlier this year, when domestic trips and tourism revenue grew 6.4% and 8% respectively. In fact, average spending per domestic tourist trip during the Golden Week was also around 3% lower than in 2019 before the pandemic, Goldman Sachs pointed out Thursday.
“The Golden Week was ‘Golden Weak,’” said Mix Shi, founder of PoshPacker Hostels Chengdu Group.
Two factors at work: 1. Global payback after the earlier tariff distortions had pulled forward demand. 2. The CCP tackling “involution” or oversupply is predictably taking its toll on the Chinese economy. The former is straightforward and is showing up more visibly and frequently around the world (see: German autos). The latter was the necessary outcome from scaling back “overproduction” attempting to rebalance prices.
People’s jobs were going to be threatened and Chinese consumers just like their American counterparts know what’s likely coming. Beijing appears to be provoking, accidentally or not, China’s own flat Beveridge.
This may be the inevitable end the longer run Silent Depression has held out for China since it first erupted on August 9, 2007.
Managed decline origination
Late in 2013, for the first time in its modern economic history there were rumors China’s government was going to allow defaults in the country’s rapidly growing corporate bond market. Like GSE’s in the US, there had always been assumed some sort of implicit backstop, though rarely ever put to any serious test.
The Chinese economy had grown rapidly for decades. As a global center for industry and manufacturing, businesses in those sectors were seemingly impervious to the ups and downs that affected overseas counterparts.
Aluminum and steel, two of the biggest bright spots in the Chinese landscape, suddenly around 2012 and 2013 their shine began to dim. Whispers of the dreaded word “overcapacity” became almost commonplace. Stunned by the turn of events, investors (globally) began to ask questions about China that they never thought would be applicable there.
Can Chinese corporates really default? What happened to the growth which was supposed to have prevented them?
There would be, in fact, bankruptcies, credit restructuring, and more painful debt adjustments. Especially in steel and aluminum. For reasons you still aren’t supposed to talk about, Western economies just aren’t buying as much as they used to from China. Or anywhere.
Coming to grips with this altered state long before anyone in the West has, China’s Communist leaders decided that the nation would change. It would have to change…or else. If its vast industrial sector couldn’t count on external demand for its produce, then the Chinese people themselves would fill in that demand gap (again, or else).
Rebalancing, they called it. The CCP really does like what it believes are pithy slogans.
Terrific branding. Nothing more than a cover story. And, as usual, Economists and policymakers outside of China couldn’t laud the Communists enough for their insightful brilliance. The daring technocrats had outsmarted everyone yet again.
Except, the only reason the very idea of rebalancing was ever thought up was because everything else was failing. It wasn’t a proactive way to launch China into a leading 21st century position; it was instead the last gasp at holding on before the ugly prospects of decay were forced piecemeal across the whole economic and then political landscape.
China’s last ditch.
For one thing, the Chinese had done everything the Western Economics textbook, the one written in the language of Keynes, had told them to do. In response to the “somehow” Global not-Financial Crisis and the “somehow” global Great not-Recession that came along with it, China’s government went absolutely nuts. Complete insanity.
Over here, they called it aggressive stimulus. Nowadays, it’d be classified as a bazooka. The Communists would remove prior restraints on everything from credit to spending caps, no more fiscal knuckle-wrapping over missing budgetary limits. Flowing through the local governments first and their state-owned businesses and others with close ties to them, everyone from aluminum smelters to small banks soon found themselves as real estate developers and asset managers.
If you were politically connected, it was all-too-easy to find financing for any pie-in-the-sky scheme. Didn’t matter. China’s once frugal and, from the Communist perspective, evolved scientific approach had been cast aside by utter necessity. The need to grow was seen as the first requirement to survival.
In 2009, 2010, and 2011, that meant simply to buy time. Let the system explore and even explode its past limits and then when organic growth resumed that would be the time to clean it all up. Real economic growth does wonders for even the messiest situations (see: 1950’s).
By 2012, however, authorities were horrified to find that instead of global recovery there was instead a worldwide slowdown. Worse, over the next several years it proved intractable. Europe fell into another deep recession while the United States, China’s number one customer, nearly did. In both cases, the writing was on the wall about the baseline state of the world economy. It wasn’t coming back.
That past aggression over stimulus suddenly looks very different. No longer buying time, Chinese officials realized it would be an enormous danger. Without growth coming from somewhere, China was at risk of becoming just another typical basket case study.
The IMF late in 2016 said exactly that. What the Chinese were experiencing up to 2014 and 2015 was the same as the organization had seen in Spain from 1998 to 2008, Thailand 1986 to 1996, and, yes, Japan 1980 to 1989. You might recognize the common characteristic among those on that list for how none of those cases ended well. What followed each time was, as the IMF report put it, “painful deleveraging.”
Xi Jinping vowed to never let that happen, the key reason why the last bazooka was allowed in 2016 and only in more limited capacity.
The fact last year’s bazooka was ever allowed at all is itself an indication of just how precarious China’s position had gotten to be. While September 2024’s was not quite the same as those previously since it was missing a direct spending component, Xi Jinping must’ve been beside himself at the prospect. And with it failing as bad as it has, that seems to explain the shift toward neijuan, involution, oversupply, whatever anyone wants to slap together for a slogan.
Here's the thing, though: it appears to be leading to the “painful deleveraging” stage anyway. That’s what the banking sector data showed for 2024, and after a brief reprieve earlier this year a new and even worse financial condition has developed from the middle of 2025.
As stated up top, you can easily appreciate one key angle why gold might be soaring to the point the critical CtG ratio has utterly crashed. That ratio has near perfectly traced out the forgot how to grow world starting with Zero-COVID China all the way into whatever dark remembering is now taking place there and elsewhere.
Yes, flat Beveridge in the US is going to be a global matter in macro and also money, as Jamie Dimon was saying about cockroaches today. Flat Beveridge in Chinese?
Something something about desperate times. Only, in this case not as some far distant unlikely future possibility. We might already be seeing its effects.
