Economy seeing good growth in corporate, household credit
Bloomberg 17 February 2009
(BEIJING) China’s economy is showing signs that a 4 trillion yuan (US$884 billion) stimulus package is taking effect.
The world’s third-biggest economy may expand 6.6 per cent in the second quarter after slowing to 6.3 per cent in the three months to March 31 - the weakest pace since 1999, according to the median estimates of 14 economists surveyed by Bloomberg News.
China is trying to reverse an economic slide that has already cost 20 million jobs, raising the risk of social unrest as exports plunge and the property market sags. Spending on roads, railways and housing has increased prices for iron ore, put a floor under industrial output and helped to drive a record US$237 billion of new loans in January.
‘China looks set to be the first major economy to recover from the current global meltdown,’ said Lu Ting, an economist with Merrill Lynch & Co in Hong Kong. ‘China is the only economy in the world to see significant growth in credit to corporate and household sectors after last September, when the financial crisis worsened to a near collapse.’
The government’s stimulus plan, announced in November, is beginning to gather momentum. Projects such as the building of 3.5 billion yuan of public houses in Shaanxi province and Shanghai began in December, while Shandong province started work on three new railway lines the same month.
China is committing about 1.2 trillion yuan of central government funds to the plan, which means banks’ willingness to fund projects is crucial. So far they are responding.
The value of new loans in January was more than double the record set a year earlier, according to figures released by the People’s Bank of China last Thursday. The lending multiplies the effect of the government’s spending in ways that wouldn’t be possible in the US and Europe, where banks are burdened by toxic assets, said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong.
While China is the only one of the world’s three biggest economies still growing, the expansion has slowed from 13 per cent in 2007 and 9 per cent last year.
Growth will accelerate from the current pace to 7.2 per cent for the full year, according to Wang Qian, an economist with JPMorgan Chase & Co in Hong Kong. Her calculation is that consumption will contribute 4.4 percentage points and investment 4 percentage points. The collapse in exports will slice off 1.2 percentage points. Stimulus spending will contribute up to 3 percentage points of the total, she estimates.
Even if the global recession is protracted, China has the ammunition to maintain growth, said Merrill Lynch’s Mr. Lu. It has public debt of only 18.5 per cent of gross domestic product - compared with 75 per cent in India - foreign currency reserves of US$1.95 trillion, and a balanced budget.
‘China has perhaps the deepest pockets in the world,’ said Mr. Lu. ‘It can relentlessly ramp up spending to create jobs and meet its growth target.’
The government-backed Purchasing Managers Index, a measure of manufacturing, showed a second monthly increase in January after a record low in November.
‘The economy is bottoming,’ said Tao Dong, chief Asia economist at Credit Suisse AG in Hong Kong, citing the PMI, the surge in bank lending, and spending on construction and machinery because of the infrastructure projects.
Some commodity prices signal a tentative recovery may be under way, as Chinese companies rebuild inventories.
China’s imported iron ore has climbed 28 per cent to 690 yuan per tonne since the end of October. Hot-rolled steel has surged 41 per cent from Nov 13 to 4,027 yuan per tonne. The Baltic Dry Index, a measure of shipping costs for commodities, has more than doubled since Jan 28.
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Signs of China stimulus package working
Economy seeing good growth in corporate, household credit
Bloomberg
17 February 2009
(BEIJING) China’s economy is showing signs that a 4 trillion yuan (US$884 billion) stimulus package is taking effect.
The world’s third-biggest economy may expand 6.6 per cent in the second quarter after slowing to 6.3 per cent in the three months to March 31 - the weakest pace since 1999, according to the median estimates of 14 economists surveyed by Bloomberg News.
China is trying to reverse an economic slide that has already cost 20 million jobs, raising the risk of social unrest as exports plunge and the property market sags. Spending on roads, railways and housing has increased prices for iron ore, put a floor under industrial output and helped to drive a record US$237 billion of new loans in January.
‘China looks set to be the first major economy to recover from the current global meltdown,’ said Lu Ting, an economist with Merrill Lynch & Co in Hong Kong. ‘China is the only economy in the world to see significant growth in credit to corporate and household sectors after last September, when the financial crisis worsened to a near collapse.’
The government’s stimulus plan, announced in November, is beginning to gather momentum. Projects such as the building of 3.5 billion yuan of public houses in Shaanxi province and Shanghai began in December, while Shandong province started work on three new railway lines the same month.
China is committing about 1.2 trillion yuan of central government funds to the plan, which means banks’ willingness to fund projects is crucial. So far they are responding.
The value of new loans in January was more than double the record set a year earlier, according to figures released by the People’s Bank of China last Thursday. The lending multiplies the effect of the government’s spending in ways that wouldn’t be possible in the US and Europe, where banks are burdened by toxic assets, said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong.
While China is the only one of the world’s three biggest economies still growing, the expansion has slowed from 13 per cent in 2007 and 9 per cent last year.
Growth will accelerate from the current pace to 7.2 per cent for the full year, according to Wang Qian, an economist with JPMorgan Chase & Co in Hong Kong. Her calculation is that consumption will contribute 4.4 percentage points and investment 4 percentage points. The collapse in exports will slice off 1.2 percentage points. Stimulus spending will contribute up to 3 percentage points of the total, she estimates.
Even if the global recession is protracted, China has the ammunition to maintain growth, said Merrill Lynch’s Mr. Lu. It has public debt of only 18.5 per cent of gross domestic product - compared with 75 per cent in India - foreign currency reserves of US$1.95 trillion, and a balanced budget.
‘China has perhaps the deepest pockets in the world,’ said Mr. Lu. ‘It can relentlessly ramp up spending to create jobs and meet its growth target.’
The government-backed Purchasing Managers Index, a measure of manufacturing, showed a second monthly increase in January after a record low in November.
‘The economy is bottoming,’ said Tao Dong, chief Asia economist at Credit Suisse AG in Hong Kong, citing the PMI, the surge in bank lending, and spending on construction and machinery because of the infrastructure projects.
Some commodity prices signal a tentative recovery may be under way, as Chinese companies rebuild inventories.
China’s imported iron ore has climbed 28 per cent to 690 yuan per tonne since the end of October. Hot-rolled steel has surged 41 per cent from Nov 13 to 4,027 yuan per tonne. The Baltic Dry Index, a measure of shipping costs for commodities, has more than doubled since Jan 28.
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