China: heading for a crunch?
China's economic slowdown has fuelled fears of an American-style credit crunch.
It became obvious early this week how much investors have been counting on China "to haul the global economy out of the mire", says Clarissa Tan on Spectator.co.uk. Assets ranging from metals to Prada shares slumped when China reported a GDP figure for the first quarter that was far weaker than expected. With Europe still in recession and recent US data shaky, that was the last thing they needed.
China's economy grew by 7.7% year-on-year between January and March. Most forecasters had pencilled in 8%. The final quarter of 2012 had seen the first acceleration in annual GDP growth to 7.9% in eight quarters. But the small bounce of recent months already seems to be fading. March data show that the quarter ended badly. Exports, fixed-asset investment and industrial production all decelerated. Retail sales were tepid. Weakness was "broad-based on the domestic front" in the first quarter, says JP Morgan's Zhu Haibin.
The big picture here is that the momentum from the renewed burst of credit-juiced fixed-asset investment, concentrating on property and infrastructure, hasn't spread. "We see fast credit growth but the money stays out of the real economy," says Haibin. There is little sign, says research group Capital Economics, of broad private-sector investment or household spending taking up the baton.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
That suggests that the government would have to loosen property-market controls or allow the credit spigots to open considerably further to give growth a significant fillip. But "neither seems likely" as the authorities already seem concerned that credit and property investment have been growing too fast, says Capital Economics. Hopes of growth accelerating into 2014 "will have taken a big knock".
With the economy fuelled by debt since 2009 overall credit in the economy has jumped by 60% in the past year fears that the debt and housing bubble will come to a sticky end will mount. As debt piles up, the danger of bad loans damaging the banking system rises.
It's interesting to note that, according to Nomura, an asset manager, some of the recent liquidity increase was absorbed by borrowers seeking to service debts rather then make new investments, thus tempering growth. If current trends continue, says Tan, China's financial sector "may well suffer the convulsions that America's did in 2007".
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
-
Will “Liberation Day” strike again?
Donald Trump’s 90-day tariff pause comes to an end on 9 July. Can we expect further market turmoil?
-
Israel claims victory in the '12-day war' with Iran
Donald Trump may have announced a ceasefire in the 12-day war between Israel and Iran, but what comes next depends on what happens internally in Iran