A China ‘hard landing’ gets closer
on May 15, 2012

China lendMay12.pngChina’s leadership remain preoccupied with the transition to a new politburo in October, and the continuing fallout from the Bo Xilai affair. Equally, April’s 7% rise in food price inflation remains a major issue for a country where 96% of the population earn less than $20/day.

Data for April bank lending and electricity consumption highlights the growing scale of the problems, as the chart shows:

• Lending (red column) was the basis for China’s massive stimulus programme in 2009-10, when it reached 1/3rd of GDP. Most of this money went straight in property development and other speculative investments, which helped give cities like Shanghai some of the world’s highest home prices
• It also fuelled inflation, as demand soared ahead of supply. So the government has since been forced to cutback. There are still occasional jumps, as in March when banks rushed to fulfil their loan quotas. But April’s lending was down 8% from 2011 at Rmb682bn ($108bn)
• Similarly, the government’s need to slow growth means electricity consumption growth is slowing. It was down 1.3% in April versus 2011 at 372bn kWh. This confirms the wider slowdown underway in the economy.
• The housing market looks particularly weak. A People’s Bank of China survey showed only 14% of people were considering home purchases. This is the lowest level seen since the market first opened up to private buyers after 1998.
• 10%-20% price cuts are common for new properties, and average apartment prices in the 10 largest cities (including Beijing and Shanghai) fell for a 4th consecutive month – but they are still unsustainably high at $2443/square metre.

The blog has warned since December 2010 that “the risk is rising that we may discover, too late, we have simply been in the middle of yet another China ‘boom and bust’ scenario“.

It sees no reason to change that view today.

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