Economic revival is well underway in China, or at least modestly well underway to the tenor of the times. The most recent readings of the two widely followed purchasing managers’ indices, HSBC’s and, to a lesser extent, the government’s, shows it, as does Thursday’s release of the government’s PMI for services. That rose to 56.1 in December from 55.6 the month before, the fastest pace of expansion in four months. The combination of easier monitor policy and infrastructure investment is the cause.
Yet therein lies a cause for concern. The sub index for construction services shows particularly strong growth, raising fears that the revival is too reliant on Beijing’s old stimulus standby, investment spending. Land prices, too, are picking up. Together they comprise a latent sign of the property bubble so carefully deflated over the past three years starting to re-inflate, despite Beijing’s assurances that it will not ease the constraints imposed on both buying property and the credit to fund it. Policymakers could afford to be a bit more sanguine about it all were they not worried about the potential for a bad-loans crisis in the shadow banking system.