Thursday, September 5, 2013

China’s record drop in credit growth puts momentum at risk

By Bloomberg News

Credit measure down for fourth straight month

China’s leaders are extending a clampdown on credit, prompting analysts from JPMorgan Chase & Co. to Societe Generale SA to caution that the economy is vulnerable to weakening after the pickup so far this quarter.

New yuan loans were probably little changed in August, after aggregate financing, the broadest measure of credit, posted a fourth straight drop in July, the longest streak in 11 years of data. Analysts’ median estimates point to the fastest industrial-output gain since December and the slowest producer- price decline in six months.

The moderation in credit after a record first-quarter financing boom stands to cap an economic rebound being driven by a recovery in confidence and Premier Li Keqiang’s support measures, such as faster spending on railways. Overcapacity and pressure to clean up debt loom as challenges, according to JPMorgan, which sees growth slowing to 7.2 percent in 2014 from 7.6 percent this year.

“There is less risk in the near term,” said Zhu Haibin, JPMorgan chief China economist in Hong Kong, who has worked at the Bank for International Settlements. “But this round of recovery will not be a strong one and won’t last long.”

Analysts surveyed by Bloomberg News last month see growth slowing to 7.3 percent in the fourth quarter, the weakest in more than four years, after 7.5 percent in the July-September period, based on median estimates.

China’s benchmark Shanghai Composite Index fell 0.3 percent as of 11:13 a.m. local time.

‘Not Sustainable’

“The recovery is not sustainable because of one very simple reason: insufficient credit,” said Yao Wei, China economist at Societe Generale in Hong Kong. Regulators are keeping a close watch on lending to local governments and banks can’t pump funds into the economy to support investment, making non-bank financing “very important for growth.”

“We may see growth picking up for one or two quarters, but it’s hard to sustain,” Yao said.

The nation’s leaders are signaling that limits on the pace of growth are part of revamping the economy. President Xi Jinping said China would “rather bring down the growth rate to a certain extent in order to solve the fundamental problems” hindering long-run development, according to written comments published Sept. 3 by the official Xinhua News Agency.

Premier Li said the same day that “we are able to and have conditions to meet China’s major economic and social development tasks this year.”

Recovery Signs

The comments build on signs of a recovery that contrast with emerging markets from India to Indonesia suffering from capital flight and growth slowdowns. China’s official manufacturing Purchasing Managers’ Index jumped to a 16-month high in August and a separate PMI released by HSBC Holdings Plc and Markit Economics showed the largest gain since 2010.

Economists see gains in July trade carrying over to August. Exports probably rose 5.3 percent last month from a year earlier after July’s 5.1 percent, while import gains may have topped 10 percent for a second month, based on median estimates of analysts surveyed by Bloomberg News through yesterday ahead of customs data due Sept. 8.

National Bureau of Statistics figures due the following day may show producer prices fell 1.7 percent, compared with a 2.3 percent drop in July, according to estimates. Industrial production may have gained 9.9 percent in NBS data out Sept. 10, the most this year outside of months distorted by the Chinese New Year holiday and up from July’s unexpectedly high 9.7 percent.

Credit Gains

Lending and credit aren’t rebounding to a similar degree. New yuan loans were probably 710 billion yuan ($116 billion) in August, little changed from both July and the previous August.

Estimates of seven analysts for August aggregate financing range from 900 billion yuan to 1.07 trillion yuan, compared with July’s 21-month low of 808.8 billion yuan and August 2012’s 1.25 trillion yuan. The People’s Bank of China will publish the data by Sept. 15.

Aggregate financing averaged 2.06 trillion yuan in the first three months of 2013.

Hu Yifan, Hong Kong-based chief economist at Haitong International Securities Group, said financing “is not a serious problem for growth” and sees a bigger pickup to 8 percent growth in 2014 from 2013 this year. “It’s true the recovery looks fragile, but with continuous policy aid, China’s growth can keep recovering,” Hu said.

Estimate Range

Estimates for growth next year from 45 economists last month ranged from 6.7 percent to 8.5 percent, with a median of 7.5 percent.

Government efforts to clean up local debt will improve balance sheets, while the U.S. Federal Reserve’s tapering of bond purchases may spur capital outflows from other emerging markets and inflows to China because of its stable expansion, Hu said.

Chang Jian, China economist at Barclays Plc in Hong Kong, said Li may set a growth target of 7 percent for next year, down from 2013’s 7.5 percent, to deliver a clearer message of slowdown tolerance. She projects 7.4 percent expansion in 2014 with “downside risks” from overcapacity, financial dangers and demographic changes.

Baoshan Iron & Steel Co., China’s largest-listed steel maker, said in August that its profit in the first nine months of this year is expected to fall by more than 50 percent.

“The recovery is temporary and doesn’t change the overall trend of a slowdown,” said Chang, who formerly worked at the World Bank. “It’s still safe to say that China’s growth in 2014 will be slower than 2013.”

See the original article >>

No comments:

Post a Comment

Follow Us