CHINA'S record imports and a rebound in lending signalled strength in demand that offers a bright spot in a global economy contending with Europe's debt crisis and weakening US job gains.
Shipments from abroad jumped 30 per cent and new local currency loans were a more-than-forecast 548.5 billion yuan ($A82 billion), reports in the past two days showed.
August figures released on Sunday indicated that policymakers have made progress in stemming inflation, which eased from a three-year high, to a 6.2 per cent year-on-year pace.
The data may bolster confidence that the world's second-largest economy is weathering Premier Wen Jiabao's campaign to defuse price pressures and financial turmoil abroad. G7 finance chiefs vowed "a concerted effort" to support expansion as Europe's debt woes and zero jobs growth in the US increase the risks of a renewed recession.
"This all points to a robust economy, and a hard landing looks an increasingly distant scenario," said Liu Li-gang, a Hong Kong-based economist with ANZ, who previously worked for the World Bank. "China is less reliant on external demand and more dependent on investment and consumption, so the deteriorating global outlook will have less of an impact than during the previous financial crisis."
China, the biggest contributor to world growth last year according to the International Monetary Fund, may expand more than five times faster than the US and the euro zone this year, according to forecasts from Citigroup and HSBC.
Citigroup estimates China will grow 9 per cent this year and next year after a 10.4 per cent pace last year, as Mr Wen's campaign to rein in consumer prices takes effect and export growth slows.
August's inflation rate declined for the first time in four months as gains in food costs eased to 13.4 per cent, the statistics bureau said. Industrial output growth moderated to 13.5 per cent and expansion in fixed-asset investment in the first eight months of the year slowed to 25 per cent.
The data "fell short of signalling any acute economic difficulties while inflation showed only modest improvement," said Yao Wei, a Hong Kong-based economist with Societe Generale. "The authorities are most likely to wait and see for another month at least before making any clear shifts in policy direction."
Mr Wen reiterated last month that stabilising prices remains the top priority and that the government will not alter the direction of economic policies after a global stocks rout and fears that developed nations will sink into recession triggered speculation he may start to unwind monetary tightening.
Growth in August imports, which topped the estimates of all 29 economists in a Bloomberg survey, adds to evidence that tightening measures aren't choking expansion.
Purchases of crude oil rose to a three-month high, copper climbed to the highest since January and iron-ore purchases were the largest since March, the customs bureau said.
Exports in August jumped 24.5 per cent to $US173.3 billion ($A165 billion), just shy of the previous month's record.
"There's a huge amount of resilience in the economy, which is supporting higher imports," said Alistair Thornton, of IHS Global Insight. "But it's inevitable that weakness in the US and euro zone economies will slow export growth."
The People's Bank of China has raised interest rates five times over the past year and curbed lending by boosting banks' reserve requirements nine times to a record 21.5 per cent for the biggest institutions. The benchmark one-year lending rate is 6.56 per cent and the one-year deposit rate is 3.5 per cent.
Domestic loans used to fund fixed-asset investment grew only 9 per cent in the first eight months of the year, while so-called "self-raised funds" jumped 29.4 per cent, according to statistics bureau data.
Some companies are taking advantage of the credit squeeze to lend at higher interest rates using banks as intermediaries. Time Publishing and Media made an entrusted loan of 60 million yuan through the Bank of Communications at an annual interest rate of 25.4 per cent, according to an August 29 statement to the Shanghai stock exchange.
Frequently Asked Questions about this Article…
What does China's record imports and rebound in lending mean for investors?
China's record imports (shipments from abroad jumped 30%) and a rebound in local currency lending (about 548.5 billion yuan) signal stronger domestic demand. For investors, this suggests a brighter spot in the global economy, showing resilience in consumption and investment that may help cushion China from weaker US and European growth.
How has China's inflation changed and what might that mean for monetary policy?
August inflation eased to a 6.2% year‑on‑year pace, with food-cost gains slowing to 13.4%. Premier Wen reiterated stabilising prices remains the top priority, so policymakers are likely to be cautious about loosening policy until inflation improvement is clearer. The article notes officials may wait at least another month before any clear policy shifts.
Are Chinese exports and commodity purchases still strong?
Yes. Exports in August rose 24.5% to US$173.3 billion, close to the previous month's record. The customs bureau also reported larger purchases of key commodities — crude oil rose to a three‑month high, copper hit its highest since January, and iron‑ore purchases were the largest since March — which underpins demand for commodity-linked companies.
What does the recent lending data tell us about how investment is being funded in China?
While new local currency loans rebounded, domestic bank loans used for fixed‑asset investment grew only 9% in the first eight months. By contrast, 'self‑raised funds' jumped 29.4%, indicating firms are increasingly using non‑bank sources alongside bank lending to fund investment.
How have interest rates and reserve requirements changed in China recently?
The People's Bank of China has tightened policy: it raised interest rates five times over the past year and boosted banks' reserve requirements nine times, taking the requirement for the biggest institutions to a record 21.5%. The benchmark one‑year lending rate is 6.56% and the one‑year deposit rate is 3.5%.
What are entrusted loans and how are companies using them during the credit squeeze?
Entrusted loans are arrangements where companies lend to each other using banks as intermediaries. The article gives the example of Time Publishing and Media, which made an entrusted loan of 60 million yuan through the Bank of Communications at an annual interest rate of 25.4%. This shows some firms are taking advantage of the credit squeeze to earn higher returns by lending directly.
Should everyday investors be worried about China's growth amid global economic weakness?
The article suggests less reason for alarm: economists quoted say China is becoming less reliant on external demand and more driven by investment and consumption, so weakness in the US and euro zone may have a smaller impact. Still, analysts warn that slower global demand will likely slow export growth, so investors should monitor export trends and domestic demand indicators.
What do major banks forecast for China's growth and what might that mean for investment decisions?
Citigroup and HSBC forecasts cited in the article indicate China may expand much faster than the US and euro zone this year. Citigroup estimates 9% growth this year and next after a 10.4% pace last year. For investors, these forecasts reinforce why exposure to Chinese growth themes (domestic consumption, infrastructure, commodities) may remain attractive, while still weighing inflation and policy risks.
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