China's growth in doubt with lenders on a bender
The OECD raised its forecast for China's growth from 6.3 to 7.7 per cent in its economic outlook last week, while the World Bank lifted its forecast from 6.5 to 7.2 per cent.
However, new credit growth figures from China last week point to the potential instability of its recent economic performance. Bank lending in the first six months of this year is expected to reach almost 7trillion yuan, equivalent to $1.2 trillion, which would be more than double the growth of last year. In the first quarter, credit was growing at 300 per cent.
It is, as Standard Chartered China analyst Stephen Green put it, the most effective monetary easing in the world.
"While many Chinese friends ask us anxiously about the US printing money, we wonder if those worries might not be better focused at home," he says.
After the first quarter's rapid growth, China's Banking Regulatory Commission instructed banks to slow their lending, and to ensure that loans were not used for speculative purposes. It repeated that warning last week. However, it is clear that the money is pouring into asset markets.
The Shanghai stockmarket is trading at 12-month highs, having risen by 71 per cent this year. Real estate turnover has surged and business investment, principally related to the stimulus package, is rising at rates in excess of 30 per cent.
Some of the credit boom is going into commodity markets. "The current surge in commodity prices is being fuelled by China's demand for speculative inventory," respected economist Andy Xie comments in a Chinese business magazine, Caijing.
He argues that bank loans have been so cheap that commodity distributors started arbitraging the difference between spot and futures prices.
"Now that price curves have flattened for most commodities, these imports are now based on speculation that prices will increase," he says, suggesting it is a bubble destined to implode.
Macquarie Bank has also questioned the sustainability of China's commodity purchases, given its stocks and production.
Besides the implications for inflation and bad debts, it is unlikely that a debt explosion can provide the footing for sustainable growth.
The World Bank's endorsement of China's growth prospects was hedged. It estimates that of the 7.2 per cent growth it forecasts this year, around 6 per cent will be a direct product of the government's stimulus package, which leaves the rest of the economy very anaemic.
It said there were limits to the role the stimulus could play, as government-influenced spending represented only a third of domestic demand in China. On its own, it was unlikely to lead to a rapid, broad-based recovery, given the global environment and the weakness of investment in China's market economy.
It noted that the focus of the stimulus package was investment and was doing little to fire domestic consumption. Apart from commodity exporters, it was doing little to stimulate the regional economy.
The OECD raised its forecast for China's growth from 6.3 to 7.7 per cent in its economic outlook last week, while the World Bank lifted its forecast from 6.5 to 7.2 per cent.
However, new credit growth figures from China last week point to the potential instability of its recent economic performance. Bank lending in the first six months of this year is expected to reach almost 7trillion yuan, equivalent to $1.2 trillion, which would be more than double the growth of last year. In the first quarter, credit was growing at 300 per cent.
It is, as Standard Chartered China analyst Stephen Green put it, the most effective monetary easing in the world.
"While many Chinese friends ask us anxiously about the US printing money, we wonder if those worries might not be better focused at home," he says.
After the first quarter's rapid growth, China's Banking Regulatory Commission instructed banks to slow their lending, and to ensure that loans were not used for speculative purposes. It repeated that warning last week. However, it is clear that the money is pouring into asset markets.
The Shanghai stockmarket is trading at 12-month highs, having risen by 71 per cent this year. Real estate turnover has surged and business investment, principally related to the stimulus package, is rising at rates in excess of 30 per cent.
Some of the credit boom is going into commodity markets. "The current surge in commodity prices is being fuelled by China's demand for speculative inventory," respected economist Andy Xie comments in a Chinese business magazine, Caijing.
He argues that bank loans have been so cheap that commodity distributors started arbitraging the difference between spot and futures prices.
"Now that price curves have flattened for most commodities, these imports are now based on speculation that prices will increase," he says, suggesting it is a bubble destined to implode.
Macquarie Bank has also questioned the sustainability of China's commodity purchases, given its stocks and production.
Besides the implications for inflation and bad debts, it is unlikely that a debt explosion can provide the footing for sustainable growth.
The World Bank's endorsement of China's growth prospects was hedged. It estimates that of the 7.2 per cent growth it forecasts this year, around 6 per cent will be a direct product of the government's stimulus package, which leaves the rest of the economy very anaemic.
It said there were limits to the role the stimulus could play, as government-influenced spending represented only a third of domestic demand in China. On its own, it was unlikely to lead to a rapid, broad-based recovery, given the global environment and the weakness of investment in China's market economy.
It noted that the focus of the stimulus package was investment and was doing little to fire domestic consumption. Apart from commodity exporters, it was doing little to stimulate the regional economy.
