China’s Economy Slowing Nicely

Moves to cool the real estate market and unwind the effect of last year’s stimulus-driven bank lending binge appear to be working on the evidence of the slowing of the economy. China’s GDP grew by 10.3% in the second quarter year-on-year,  down from 11.9% in the first. Over the first six months, the economy expanded by 11.1% compared to the same period a year earlier, the National Bureau of Statistics says.

Beijing’s practice of publishing year-on-year GDP comparisons, and not quarter-to-quarter ones, makes judging the current trajectory of the slowdown more difficult. The unexpectedly sharp slowdown in industrial production, up 13.7% in June, compared to May’s 16.5% rise, allied to the slowing of import growth in the most recent monthly trade figures and some evidence of a fall in consumer confidence, suggest that the economy may well be growing now at somewhere in the 8-10% (annualized) band. That is where the authorities want it.

For as long as it stays in that range there is unlikely to be any policy change, either tightening or easing. There is still a lot of off-balance sheet and informal-sector bank credit to mop up. Outstanding loans at all financial institutions totaled 44.6 trillion yuan ($6.6 trillion) at the end of June, only 2.6 trillion yuan down from a year earlier. The question is how long the wiggle room in that GDP growth band for the authorities to continue mopping will last. The answer may lay as much in what happens to growth (or otherwise) in Europe and the U.S. as it does within China itself.

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