“No country can live on stimulus alone – not even China,” said John Foley on Breakingviews. Despite optimism over the RMB4trn ($585bn) stimulus plan, recent trade figures “give cause for concern”. Exports were down 23% year-on-year – evidence of “a country whose customers are still on strike”.
That verdict may be too gloomy, said Ken Peng of Citigroup: remember that March saw a “particularly promising” rebound after the global trade collapse at the end of 2008. “Some relapse in April was not too surprising.” Nonetheless, this emphasises that “China’s export sector will most likely stay in the back seat while investments take the lead in driving growth this year”, said DBS.
Fixed asset investment was up a huge 30.5% year-on-year in the first four months of 2009. Those numbers may overstate things, said Mark Williams of Capital Economics: indicators such as steel prices don’t support such a rapid pick-up. But it seems growth has at least stabilised. Recent signs of deflation (the consumer price index fell 1.5% year on year) are a “result of policy” rather than weak demand; the government is cutting utility prices to support consumers.
Betting on a boom
There are risks: new bank lending was larger in the first quarter than for 2008, raising fears of malinvestment and a surge in bad loans. The picture is mixed, said Stephen Green of Standard Chartered; there are stories of firms expanding “with little regard for demand”, but others are “behaving more rationally” and at least half the loans went to infrastructure projects. Allowing this investment boom, the government is betting it will spur growth and enable them to be repaid. “We need to recognise that … it is a bet.”