Chinese monetary data consistent with gradual economic improvement
Simon Ward
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Chinese money and lending trends continue to suggest stronger economic growth but – thankfully – no return to the credit-fuelled frenzy of 2009-10.
The chart compares six-month changes in industrial output and four measures of real money / lending. The least bullish is real narrow money M1, which was the best of the indicators in signalling economic weakness in 2012. Six-month growth has revived significantly since mid-year but remains modest by historical standards.
The most bullish is real total social financing – a broad credit measure including non-bank trust loans, acceptances and bond financing as well as conventional bank lending. Six-month growth* climbed to an estimated 9.5%, or almost 20% annualised, in November – the strongest since June 2010. The authorities clamped down on credit disintermediation in 2011, resulting in social financing expanding at a similar pace to bank loans. They appear to have reversed course in 2012 in order to stimulate the economy, with a significant growth gap opening up again since the spring.
A scenario of strengthening growth but no boom is supported by the OECD’s Chinese leading indicator, a transformed version of which climbed to a 22-month high in October but remains below half the level reached ahead of the 2009 economic surge.
*A stock series was estimated from flow data and deflated by the consumer price index.
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