Econintersect: China continues to show indications that it is serious about avoiding a full-blown financial crisis. Private credit issuance in July continued to follow the recent pattern of declining rates of increase. The broadest measure of new credit fell to a 21-month low, according to Bloomberg. However the growth of the M2 money supply picked up last month to a 14.5% annual rate after three consecutive monthly declines. Bloomberg says this was unexpected.
From Australia , where the path of the Chinese economy is vital to that country’s direction, Austen Goolsbee, University of Chicago professor who was President Obama’s economic advisor in the first term, advised a mining industry conference that the China credit markets had been “getting on a rollercoaster ride” that increased worries. The prospect of conditions getting to the point that banks would have to start recognizing loan losses would be a “pretty serious issue“. Goolsbee said:
“That has a feel not unlike the summer of 2007 before the big financial crisis in the US.”
“But over the medium to long run, China still has a lot of room to make the transition to a domestic focused economy.“
Macro Business has an excellent discussion of the data from China, including this graph that shows the collapse of shadow banking contributions to new credit.
Macro Business says the credit story remains the big one for China and it “overshadows [the] rebound“, referring to the improving trade story from a few days ago. See GEI News.
For a thorough discussion about the challenges faced by the Chinese economy see the latest from China expert Michael Pettis at GEI Opinion, just posted.
- China’s Credit Expansion Slows as Li Curbs Shadow Banking (Hu Shen, Alan Wong and Nerys Avery, Bloomberg News, 09 August 2013)
- Warning about China credit squeeze (news.com.au, 05 August 2013)
- Chinese credit crunch overshadows rebound (House and Holes, Macro Business, 12 August 2013)
- China: Trade Rebounds (GEI News, 08 August 2013)
- The Changing Debate Over China’s Economy (Michael Pettis, GEI Opinion)