Chinese growth slowed again towards the end of 2013. The latest survey of manufacturing activity pointed to a broad slowdown in December. New orders and export orders declined. An index tracking services slid to its lowest level since August 2011.
Meanwhile, the National Audit Office reported that local government debt had jumped by 70% to 18trn yuan ($3 trn) in the past three years. Throw in central government debt and overall state debt is now worth around 55% of GDP.
What the commentators said
Expect more of the same as the government tries to let air out of the credit bubble without a hard landing.
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
But the worry is that its efforts won't suffice. Overall credit in the economy continues to rise quickly. Liabilities at non-financial companies could climb to 150% of GDP in 2014, the highest among the world's ten biggest economies, according to Haitong Securities. The US figure is 78%.
"The longer it takes to bring credit under control," said Gavyn Davies on Ft.com, "the greater the chance of a much harder landing."
The economy already appears to be hooked on debt, with four yuan of debt needed to produce one yuan of growth, compared to one a few years ago. That's partly because companies increasingly seem to be borrowing just to roll over loans already on their books they are borrowing to avoid recognising bad loans.
And given that the shadow banking system off-balance-sheet lending at banks and other forms of underground credit is partly responsible for the credit bubble, the spillover effects of any bankruptcies induced by a state credit clampdown could take the authorities by surprise.
The upshot, said Jeremy Warner in The Daily Telegraph, is that a major slowdown looks in the offing. "China is about to learn the hard way that there is a downside to the free market by definition, it cannot be dictated to."
-
Millions at risk of 'unnecessary' tax bill – how to shield your savingsMillions of Brits could be taxed on their savings interest this year as their savings interest exceeds the personal savings allowance. Are you at risk?
-
Savers will have to wait as long as 48 years to build a £1m cash ISA pot if allowance is cutChancellor Rachel Reeves is rumoured to be planning a cut to the cash ISA allowance in the Autumn Budget, making it harder for savers to build wealth. Will you still be able to build a £1 million cash ISA pot?
