One can only feel sorry for China’s government leaders. A year ago, they faced 23m unemployed, as their export markets collapsed in the West. In order to avoid major social unrest, they opted to unleash what the Wall Street Journal called “one of the biggest credit expansions in history“. $1.4trn was lent during 2009, in a total economy of only $4.2trn. In addition, there was a stimulus programme worth $580bn.
Of course, some of this money will have been spent wisely. But it is unlikely that the required number of financially sound projects could have been found in such a short space of time. A considerable amount must have gone to fund speculation. As the above chart shows, the statistics from the Dalian futures exchange confirm this suspicion, as LLDPE volume (blue line) rose from 20m tonnes to a peak of 80m tonnes by April.
More recently, volumes have begun to slow as the government now tries to reverse course and avoid major asset price inflation. January saw only 28m tonnes traded. And this month’s volume may be lower, with the Lunar New Year holiday beginning 3 weeks later (14 February). Yet there is still little evidence that China’s main Western export markets (which accounted for 37% of GDP in 2007) are about to stage a full recovery.