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China’s economy flashes an amber light

Chemical companies, Consumer demand, Economic growth
By Paul Hodges on 19-Jul-2010

China lendJul10.pngChina’s chemical demand is clearly starting to slow, as my fellow blogger John Richardson has been reporting recently. This has big implications for the global chemical industry, which has relied on China to balance declining sales in the West.

The slowdown comes as the government rolls back the stimulus measures introduced in Q4 2008, when 23 million Chinese lost their jobs as exports collapsed. These measures have done the job in terms of creating employment, by subsidising domestic demand and financing major infrastructure investment.

But they have come at a cost in terms of rising asset prices, particularly in housing. Labour unrest has also increased, as workers find themselves unable to afford apartments. In turn, this has led to outspoken criticism by young writers such as Qing Tong, whose book ‘From the Wolf’s Burrow into the Tiger’s Den’ became an instant bestseller last month.

The result is shown in the chart above. Bank lending (red column) fell 37% in H1 versus 2009, and is on course to meet the annual target of a 21% decline. And power consumption (blue line) probably peaked in May, as China Daily reported it “rose at a slower pace last month because of weakening demand from heavy industries“.