This Bystander has noted before that the signs of revival in the economy are more to do with stimulus spending and pressed lending by state banks than a revival of trade and industry: exports in April were still down 22.6% from the same month a year earlier, energy usage, which correlates closely to industrial production, declined 3.5% year on year during the month and there is scant sign of factory excess capacity shrinking. Though retail sales were up 14.8% in April year-on-year, urban fixed asset investment during January to April was up 30.5% compared to the same first four months of 2008 as money poured into housing, railways and other infrastructure.
Equities are reflecting this, with the Shanghai Composite Index up by more than 45% this year. Indeed, more than reflecting it; the rise gives credence to those who say stimulus spending has been front loaded and we may already have got through four fifths of the money earmarked for this year. The leveling off of bank lending in April would support that point of view.
If the funds run dry before global trade revives, the economy will slump again, and with it optimism that China can pull the global economy through this recession. We recall Prime Minister Wen Jiabao saying at the National People’s Congress in March that he had a top-up stimulus package sitting in his back pocket should it be needed. We may be seeing it after all, and perhaps sooner rather than later.