Most stockmarkets have continued to struggle this year after a dismal 2008, but on China’s domestic market the bulls are celebrating the advent of the Year of the Ox. The CSI Composite index tops the global league for 2009 with a dollar gain of 31%, fuelled by hopes that the economy is rebounding. But a closer look at recent data suggests that there isn’t really much to get excited about. The most encouraging recent data point was the record surge in bank lending in January after the government urged banks to turn on the taps as part of its stimulus plan. Outstanding loans were 21.3% up year-on-year last month.
However, almost two-thirds of the new lending is short-term help to keep firms going. But the key to growth is financing for new investment, says Capital Economics. Moreover, profits are a far more important source of investment than lending – and profits are now on the slide. Other data also show that it’s far too early to sound the all-clear. Exports, which account for around 40% of GDP, slumped by an annual 17.5% in January. Even more worrying was the 43% drop in imports, implying weakening demand within the economy. So bullish investors risk jumping the gun.