China’s inflation at new high, bank lending slows

Chemical companies, Consumer demand, Economic growth, Financial Events, Futures trading

China CPI Jun11.pngThe blog continues to worry about signs of a slowdown in China.

Major commodity trader, Glencore, said this week “we see a pullback in China and it will continue“. This challenges the views of Dow CEO Andrew Liveris last month, and Rhodia CEO Jean-Pierre Clamadieu – who said last week he saw “no material signs of a slowdown“.

Clearly it is still an area where reasonable people can disagree. But this week’s evidence on inflation and bank lending seems to support the downside view:

• China’s inflation (see chart) hit a new 3 year high of 5.5% in May
• Even more seriously, food inflation was at 11.7%

Bank lending is finally slowing
• January-May lending was 12% lower than 2010

Food prices matter in a poor country like China. Guangdong is a wealthy province but average wages for a garment worker are just $300/month. Farmers in poorer provinces like Sichuan earn less than half this. Unsurprisingly, social unrest is therefore spreading, with riot police reportedly used in Zengcheng, a Guangdong city of 800,000 people.

China’s Academy of Social Sciences forecasts 6% inflation in June, after the energy price rises. And so calls are intensifying to further slow the economy. The central bank raised reserve ratios to a record 21.5% following the inflation news, and clearly more tightening is on the way.

As my fellow blogger, John Richardson has reported, lack of credit is already restricting chemical trade. Opening a letter of credit used to be as easy as calling the bank, in the boom lending days of 2009/10. But today, foreign currency credits are being restricted, meaning that maybe 3/4 banks have to be involved just to buy one cargo.

The length and depth of the downturn will depend on the property market:

• Prices have skyrocketed with easy lending, and Beijing is now the 28th most expensive city in the world, alongside Vienna and Copenhagen
• Speculation has led to 64.5 million empty homes, according to the Academy of Social Sciences. Whilst the Beijing Real Estate Association has warned there is “a rather big bubble in the city’s real estate market”.

The government thus remains between a rock and a hard place, as the blog has warned for the past 6 months.

If it makes lending too easy, food inflation will continue to soar. If it cuts back too hard, property markets could implode. Its task in now managing this delicate balance is not going to be easy.


5th Asian Aromatics Conference in Singapore


The blog continues to worry about signs of a slowdown in China. Major commodity ...

Learn more

High stocks lead buyers to hold back purchases


The blog continues to worry about signs of a slowdown in China. Major commodity ...

Learn more
More posts
BASF’s second profit warning highlights scale of the downturn now underway

The chemical industry is easily the best leading indicator for the global economy.  And thanks to K...

Chemistry & the Economy: 2019 Outlook

There will be no shortage of important topics to discuss on Thursday, at my regular Chemistry and th...

Brexit moves from ‘Snakes and Ladders’ to cricket

The Brexit debate had appeared to be a simple game of Snakes & Ladders till now.  The Leave cam...

Asian downturn worsens, bringing global recession nearer

The chemical industry is the best leading indicator for the global economy.  And my visit to Singap...

Your ‘A-Z Guide’ to the Brexit Negotiations

“The UK is now facing a national crisis”, according to Margaret Thatcher’s former ...

Global smartphone recession confirms consumer downturn

Q3 smartphone sales data show the global market in recession, as Strategy Analytics confirmed: “Th...

Chemical output signals trouble for global economy

A petrochemical plant on the outskirts of Shanghai. Chinese chemical industry production has been ne...

Budgeting for the end of “Business as Usual”

Companies and investors are starting to finalise their plans for the coming year.  Many are assumin...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more