Daily Management Review

Signs of Debt-fueled Recovery Evident in Chinese Economy


Signs of Debt-fueled Recovery Evident in Chinese Economy
A recovery in factory activity, investment and household spending in the world's second largest economy appears to be fueled by a surge of new debt even as China posted its slowest economic growth since 2009.
While this comes as good news for many in the near term, there are worries that it effectively indicates a return to the old playbook used during the financial crisis. At that time massive stimulus was used by Beijing to bring its economy out of a slowdown instead of structural reform.
Easing slightly from 6.8 percent in the fourth quarter as expected, China's gross domestic product grew at an annual rate of 6.7 percent in the first quarter of the year, showed official data released on Friday. New loans, retail sales, industrial output and fixed asset investment were all better than forecast, other indicators released showed.
Some warn that the first quarter of 2015 got off to a similarly glowing start before a stock market crash later that year while analysts say the data is evidence of a bottoming out in the economy's slowdown.
"What this shows is a stabilisation of the old economy. I would still be a bit cautious about headline growth... last year's 6.9 percent figure was underpinned by a massive contribution from financial services, and the strong loan and credit growth recently and the recent resumption of IPO activity suggests this could still be a big contribution," said Raymond Yeung of ANZ, pointing to recovery in industrial production and fixed asset investment.
While main economic indicators showed positive changes, "downward pressure cannot be underestimated," the National Bureau of Statistics said in a press conference in Beijing on Friday.
Saying it needed more time to calculate the figure, it did not distribute quarterly GDP figures as it has in the past.
As analysts said the strong data implied the likelihood of a slower pace of monetary easing, global financial markets took the data in stride, but domestic stocks fell slightly.
The CSI300 index  of the largest listed firms in Shanghai and Shenzhen closed 0.1 percent lower.
To avoid the need for more aggressive stimulus that could reinflate asset bubbles and make it more difficult to retrain Chinese firms to move up the value chain, Beijing hopes a recovery - even a credit-fueled one - can be sustained.
Suggesting renewed appetite for investment among wary Chinese corporate, Chinese banks extended 1.37 trillion yuan ($211.23 billion) in net new yuan loans in March, nearly double the previous month's lending of 726.6 billion yuan.
While fixed-asset investment growth rose to 10.7 percent year-on-year in the first quarter from 10.2 percent, beating market expectations of 10.3 percent, China's retail sales growth quickened to 10.5 percent in March from 10.2 percent, slightly above forecasts.
Surprising analysts who expected a rise of 5.9 percent on an annual basis, industrial output growth leapt up to 6.8 percent from 5.4 percent.
Despite moves to cut capacity in bloated industries like coal and steel, the NBS also noted that official unemployment remained low in March, around 5.2 percent.

Many laid-off workers from old-economy sectors have been shifted into lower-paying government jobs, cleaning up offices - good for political stability but bad for wage growth and consumer spending, critics point out.