China’s economy hits the ‘pause’ button

China lend Mar11.pngThe blog’s recent Asian visit revealed considerable anxiety about the state of demand in China. As its blogging colleague, John Richardson, has also described, the country’s lending cutbacks may finally be taking effect.

New official figures for lending and electricity consumption support this view. These are two of the only 3 figures trusted by likely future premier Li Keqiang. He described GDP numbers as being for “guidance” only.

And as the chart shows, both lending (red column) and electricity consumption (blue line) were down in February. Of course, part of this was due to Lunar New Year. But even so, total lending in Jan/Feb was down 24% versus 2010, a quite remarkable fall. Electricity growth also seemed to slow, up ‘only’ 11% compared to 2010’s 28% rise.

Last week, further signs appeared that a ‘pause’ may now be underway:

• ICIS’s Linda Naylor, one of the most trusted observers on the polymers scene, reported offers of Chinese polyethylene (PE) into Europe at €100/t ($143/t) below current prices.
• Earlier, ICIS’s Fanny Zhang in Shanghai had reported ethylene sales underway from the Fujian JV, due to “high inventories“.

Polyethylene is THE leading indicator for chemical demand in China. Not only is it the world’s major polymer. But it has also been the focus of the massive speculation on China’s Dalian futures exchange.

Equally, China’s supply/demand balances mean that in normal times, it should always be an importer of both ethylene and polyethylene. In 2010, it was the world’s largest PE importer at 4.9 million tonnes, according to Global Trade Information Services data.

It is probably still too early to be sure that today’s ‘pause’ will continue. But if the blog was still running a major business, it would certainly be updating its ideas on how to mitigate a Downside Scenario, just in case.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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4 Responses to China’s economy hits the ‘pause’ button

  1. Regan 31 March, 2011 at 9:59 am #

    Is it just that as China is urbanising, the slowdown from unsustainable hyper-growth to more stable growth, looks like China is hitting a brick wall? Even though China’s ‘more sustainable’ growth rate, would be considered and envied as hypergrowth anywhere else in the world.

    Interesting to see if the next data point, shows a repeat of last years pattern.

    The main question should be, where is China going to get electricity from? Coal, gas (and now nuclear) are taboo. Solar, wind, tidal aren’t baseload or economical. Geothermal isn’t scalable; Thorium reactors unproven, and R&D stage.

  2. Jay Banks 6 April, 2011 at 9:56 am #

    I assume as the inflation in China rose up to 4.9% (instead of declared 4% earlier this year) people are more afraid of spending. Well far as I know China had bought coal mines in Africa to gets some little support of increasing demand for energy consumption. Under pressure of the latest occurrences they will be more vigilant to use nuclear energy (well, we all should be anyway).

  3. Regan 15 April, 2011 at 10:29 am #

    Chinese electricity consumption for March was 388.8 b kW/h

    And lending was about $104 b, have heard reports that the banks were over-cautious in their drastic cut-back in lending.

    So, so far this year seems like a repeat of last.

    Chinese FX reserves also hit a new record of more than $3T.

  4. Paul Hodges 15 April, 2011 at 3:59 pm #

    Thanks, Regan. I think its a bit too soon to draw conclusions either way. This is China. But Q1 lending was down 14% versus 2010, which is quite a drop, and electricity consumption growth was ‘only’ 7%, versus 24% growth in 2010.

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