17 October 2018
China is able to maintain economic growth momentum without excessive credit expansion and a red-hot housing market. Photo: Bloomberg
China is able to maintain economic growth momentum without excessive credit expansion and a red-hot housing market. Photo: Bloomberg

China’s economic growth outlook sustainable amid curbs

China’s broad money supply or M2 growth has slowed to a record low. Chinese authorities are stepping up property curbs. Nevertheless, the nation’s economic growth has not shown any sign of weakening, which suggests the government’s efforts in deleveraging, supply-side reform and financial reform are paying off. China is able to maintain economic growth momentum without excessive credit expansion and a red-hot housing market.

China’s broad M2 money supply grew 8.8 percent in October from a year earlier, the slowest pace on record. China’s new loans fell more than expected to 663.2 billion yuan, the lowest level since October last year. It plunged 48 percent from 1.27 trillion yuan in September.

The authorities stepped up deleveraging ahead of the once-every-five-years party congress. Bank loan quotas are almost used up near the year end, and many banks would roll over quotas from next year. But they have switched to sitting on the fence for fear of getting in trouble.

In the meantime, new short-term yuan loans extended to individuals slumped nearly 70 percent to 79.1 billion yuan in October from 253.7 billion yuan in the previous month. China’s internet-driven short-term individual loans have become increasingly popular in recent years. Any mainland individual can borrow up to six-digit loans as long as he/she meets certain income and credit requirements.

Many Chinese have used consumer loans to fund their down payment in light of a red-hot housing market in recent years. As a result, Chinese authorities cracked down on online lending and consumer loans last month, which led to a free fall in short-term customer loans.

President Xi Jinping stressed at the 19th party congress, that “houses are for living in, not for speculation”. That prompted local governments at all levels to step up housing curbs.

China’s property sales fell nearly 3 percent to 1.1 trillion yuan in October, the biggest drop in three years. And the nation’s home sales may have slumped 6 percent last month from the year before, according to Haitong Securities.

Investment in real estate development reached 9.05 trillion yuan in the first 10 months of the year, up 7.8 percent from the year before. The growth pace  eased 0.3 percentage points from the level in first three quarters, and below the nominal GDP growth of 8.4 percent. In that sense, real estate investment has become a drag on GDP growth.

China has been able to maintain robust economic growth after the 2008 financial crisis. But the nation was criticized for its heavy reliance on credit expansion and the property sector. That has raised questions about how long the growth model can sustain.

Nevertheless, China’s economic growth showed great resilience last month despite deleveraging and property curbs. China’s retail sales of consumer goods grew 10 percent year-on-year in October. And the nation’s power generation posted 2.5 percent growth last month. In addition, online sales on Singles’ Day spiked 40 percent.

Generally speaking, China’s efforts in deleveraging, supply-side reform and restructuring in financial sector are paying off. The nation is likely to reembark on a growth journey. China’s economic growth rate slumped to 6.9 percent in 2015 from 9.3 percent in 2011. It is expected to arrive at a tipping point soon as authorities shift their focus to growth quality over quantity. Investors should not overreact to last month’s disappointing figures.

This article appeared in the Hong Kong Economic Journal on Nov. 15

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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