Chinese Stimulus, Lending May Drive Rebound as Exports Slide
China’s 4 trillion yuan ($585 billion) stimulus plan and record bank lending may drive the nation’s economic recovery even as exports plunge.
Spending on factories and properties surged 30.5 percent in the first four months from a year earlier, data released this week showed. Money supply grew by a record and new loans have exceeded a 5 trillion yuan government target for the whole year.
China aims to be the first nation to recover from the global slump that has choked off demand for exports, sending the nation’s shipments tumbling. A revival in the world’s third- biggest economy would help countries across Asia by increasing demand for their products and add to signs that the worst of the global recession is over.
“The recovery from the major shock of the second half of 2008 was never going to be smooth,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “But China can pump-prime its economy for 18 months to two years to wait for a recovery from Western consumers.”
The Shanghai Composite Index of stocks has climbed 46 percent this year on expectations that China’s economic growth will accelerate.
Nobel Prize-winning economist Joseph Stiglitz said yesterday that China may emerge “a winner” from the global crisis because the nation is buffered by a high savings rate and the government “has taken very rapid action.”
Solid Foundations
This week’s data highlighted the effects of the stimulus plan announced in November. It also supported the central bank’s assessment in a quarterly monetary policy report that the recovery is not yet on solid foundations.
Growth in industrial production weakened in April and a decline in power output accelerated, the statistics bureau said. Exports plunged a more-than-estimated 22.6 percent from a year earlier as trade with the U.S. and the European Union fell car insurance quotes.
“I’m shrugging off the decline in industrial output growth,” said David Cohen, an economist with Action Economics in Singapore. “We are still heading in the right direction.”
China has scrapped quotas that limited lending by banks, unveiled plans to support 10 industries from autos to textiles, and pledged extra health and welfare spending to spur growth.
Positive data this week included a 14.8 percent gain in retail sales in April from a year earlier and a 35 percent jump in home sales in the first four months. Consumer prices fell 1.5 percent last month from a year earlier, which may encourage spending.
‘Aggressive’ Stimulus
“China is doing massive, aggressive monetary, fiscal and credit stimulus and that’s going to lead to a recovery of growth,” said Nouriel Roubini, the New York University economics professor who predicted the financial crisis. “But I worry about the quality of that growth,” he said, adding that private domestic demand is not growing fast enough.
Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong, had a similar concern. Ma said this week’s data showed an economy driven by government-led investment while the recovery in the private sector remains weak.
China’s economy grew 6.1 percent in the first quarter, the weakest pace since at least 1999. While the government says its 8 percent goal for this year is within reach, a bigger challenge may be maintaining growth in the longer term.
“Without exports, China can produce growth for a period of time by getting the banks to lend like crazy, but that’s not sustainable growth,” said Paul Cavey, an economist with Macquarie Securities Ltd. in Hong Kong.