China’s lending, electricity consumption continues to slow

Economic growth

SHARE THIS STORY

China lend Jun15‘Bad news’ seems to have become ‘good news’ as far as China’s economy is concerned.  In the past, most analysts simply ignored the possibility of a major slowdown.  Now that the slowdown is underway, they still ignore it  – this time, because they are sure further stimulus is just around the corner.

But time passes, and the lending data still points in a downwards direction, as the chart above shows:

  • Shadow lending is now just a quarter of total lending, less than half the previous ratio (red area)
  • This was the area the government wanted to squeeze, as it had created the property bubble
  • Official lending has been maintained at previous levels, but not increased (green)
  • This is essential as the government needs to keep liquidity in the banking system

Ironically, the analysts are in fact right, for the wrong reasons.  It is actually very good news that China has stopped trying to create ‘wealth effects’ via stimulus and an unsustainable property bubble.  As the editor-at-large of China Daily explained recently:

Here’s why Chinese banks are reluctant to lend even though the central bank has cut both the interest rates and banks’ reserve requirements: Their clients-mostly those on the corporate level-are besieged by more and more difficulties in the market and are less and less able to pay back their borrowings  Local housing developers cannot sell all the apartments they have built.”

A new investigation by the New York Times confirms his conclusion:

Despite recent signs that housing prices are stabilizing, a backlog of unsold homes and unleased shops means that builders simply are not doing much building“.

China elec Jun15

China’s construction market came to dominate the economy under the stimulus programme.  Now other key data are confirming the slowdown, with electricity consumption up just 1.6% in May, as the chart above shows.  This takes us back to the pattern in early 2009, before the stimulus programme began to have its full impact.  And it reflects the policy statement made at the end of 2014:

China’s economy has entered a “new normal” of slower but higher-quality growth. From top leadership to small-business owners, the “new normal” status has become the new consensus.

“The popularity of the catchphrase marks a shift in mindset of the Chinese people – lower growth is likely to continue for a while and is not a sign of failure, but a lack of reform can be fatal to long-term sustainable growth.  For policymakers, they are less worried about missing official growth targets, but rather hold fast to the belief that giving up growth spurts for stringent reforms will eventually pay off.

“A nationwide acceptance of and disenchantment with growth figures will help build a stronger economy — slower growth but lower unemployment driven by innovation and services industry, compared with high growth and high unemployment in an economy led by investment and exports in the past.”

China’s new leadership made it clear on taking office that they would not continue with stimulus policies.  They knew they had to change course, and move away from the investment and export-led focus of the past.  But most analysts have continued to wear their rose-tinted glasses and have ignored the changes underway.

It may be a painful awakening, when the reality of China’s New Normal policies finally forces them to accept this has been wishful thinking.

 

PREVIOUS POST

German markets stumble as "Sell in May" theme continues

15/06/2015

My 4 May post was titled “‘Sell in May and go away?’ as US, Ge...

Learn more
NEXT POST

US futures market rally boosts US and OPEC oil output

17/06/2015

Whisper it quietly to your friends in the futures markets, who are convinced oil...

Learn more
More posts
Global chemical industry – key trends for success in today’s New Normal
02/08/2020

The chemical industry is the best leading indicator for the global economy. On Friday, I had the pri...

Read
Oil prices signal potential end to the V-shaped recovery myth
26/07/2020

Oil prices have moved into another ‘flag shape’ – which previously provided critic...

Read
Bankruptcies now the key risk as hopes for V-shaped recovery disappear
19/07/2020

Governments, financial markets and central banks all originally assumed the Covid-19 pandemic would ...

Read
Merkel warns of need to prepare for No Deal Brexit
05/07/2020

Most people missed the fact that last Tuesday was the last possible date to delay the UK’s exi...

Read
World moves from Denial to Anger, as the Paradigm of Loss moves forward
07/06/2020

I have been warning about the Covid-19 risk since early February, and in April suggested here that: ...

Read
The New Normal for global industry
31/05/2020

The global chemical industry is the third largest sector in the world behind agriculture and energy,...

Read
Debt, deflation, demographics and Brexit set to challenge London house prices
17/05/2020

London property websites haven’t used the word “reduced” for many years. But it...

Read
The bill for two decades of doomed stimulus measures is due
03/05/2020

The Financial Times kindly made my letter on the risks now associated with central bank stimulus the...

Read

Market Intelligence

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

Learn more

Analytics

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