By John Richardson
POLITICS, politics and politics are three most important factors that need to be evaluated when assessing the direction of China’s economy.
Thus, in the short term it appears that the surge in bank lending from May to September might well have been to create the illusion of a robust economy ahead of the 18th Party Congress, in an effort to shore up support for the Communist Party.
Now it appears, though, that the government – after ordering the state-owned banks to advance some $1.1 trillion to infrastructure projects between May-September – has taken the foot off the lending peddle.
The reason for our conclusion is that bank lending expectedly fell by 14% in October (see above chart), which suggests to us that the demand for loans from the private sector remains weak.
Private-sector companies, including plastic processors, seem as if they are still reluctant to borrow, given uncertainties surrounding the leadership handover and a weaker domestic economy.
“The activity bounce in China is coming from external demand while domestic spending remains weak,” Tim Condon, chief Asia economist at ING Financial Markets in Singapore, told Bloomberg.
He added that weaker-than-forecast imports in October indicated the weakness in local consumption growth.