CHINA’S ECONOMY remains on the road to recovery and should meet the government’s 8 per cent growth target this year despite a third month of deflation and a slowdown in bank lending, analysts said this week.
The upbeat sentiment around China’s prospects as it feels the benefits of the government’s 4 trillion yuan (€430 billion) stimulus package has complemented early signs of recovery in the US.
Prices continue to fall in China, with consumer prices down 1.5 per cent in April and prices at the factory gate down 6.6 per cent in the year. Economists seemed unworried by the third consecutive month of deflation, and believe prices will rise by the end of the year. The declines are seen as reflecting a correction to sharp increases in food prices last year, as well as other goods.
The Chinese central bank took an aggressive stance on cutting rates in late 2008 to help its stimulus package, and sentiment in the region was boosted when Su Ning, deputy head of the People’s Bank of China, said the stimulus plan was working.
“China’s economy is expected to sustain rapid growth for some period in the future,” Su told a financial conference.
His upbeat tone was echoed by Premier Wen Jiabao, who made it clear that the government was ready to keep rolling out new elements to keep the stimulus plan working during the year.
Bank lending slowed dramatically in April – Chinese banks issued new loans worth 592 billion yuan in April, less than a third of the previous month’s total, the central bank said, as lenders slowed the flow of credit aimed at stimulating the economy.
The figure announced by the People’s Bank of China was up 27 per cent from the same month a year earlier but slightly below forecasts for about 600 billion yuan in new lending in April.
Analysts were again not fazed by the fall in lending giving that it had soared to such a high rate of 4.58 trillion yuan in the first three months of the year, peaking at a record 1.9 trillion yuan in March.
Wang Tao, head of China Economic Research at UBS Securities in Beijing, said she did not believe the deceleration was too sharp and did not signal a slowdown in economic growth.
“April bank lending grew by 29.7 per cent year-on-year; hardly a slow pace. Meanwhile, the growth of broad money accelerated to 26 per cent year-on-year. New bank lending is expected to taper off naturally after the first quarter…Bank lending is usually front-loaded in China, and this pattern has been exaggerated this year by the government’s stimulus,” she said in a research note.
“The natural tapering off does not mean that growth will slow down. We continue to think that there will be enough liquidity to support an economic recovery for 2009.”
