A slow end to 2023
Chinese partial economic indicators were largely in line with expectations in April. However, we are yet to see signs that real activity is significantly picking up. We continue to expect growth of 8% in 2013, although risks remain skewed to the downside.
Partial economic indicators were largely in line with expectations during April. However, we are yet to see signs that real activity is picking up significantly, although monetary expansion has been much more rapid. Nevertheless, we have left our growth expectations for 2013 unchanged at 8%, although we continue to view the risks as skewed to the downside – sub-8% growth this year is looking increasingly likely. But even with the growth outlook turning more moderate, expectations for the Chinese economy – and the currency – have encouraged capital inflow since late last year (spurred on by quantitative easing by major central banks). These factors are creating a quandary for policy makers who have become increasingly concerned over building inflationary pressures and (arguably unsustainable) expansion in system credit. Consequently, this has added to the uncertainty surrounding the likely path of macro economic policy in China.
Credit growth has stepped up noticeably in the first four months of the year. Although total social finance issued in April eased back from the previous months record, it remained high at RMB1.7 tn for the month (RMB7.9 tn in the year to date). Bank credit increased 16.1% over the year, with RMB878 bn in bank loans issued in April (27% higher than last year). At face value, strong credit growth may be considered a positive sign for the economy – if the funds are put to productive use. However, this trend is becoming a concern in light of rapid credit and investment growth over recent years that has contributed to an excess of (unproductive) capacity – total credit to GDP has risen from around 120% of GDP in 2008 to around 190% this year.
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