The markets have something new to worry about, says Jamie Chisholm in the FT: “waning activity in the world’s second-biggest economy”, China. This week a survey covering the services sector showed the slowest pace of expansion in five months. Its manufacturing equivalent suggests that industrial growth has ebbed too.
The Chinese government has also taken further measures to cool the property market. It clamped down on purchases of second homes and insisted on higher mortgage downpayments in cities where prices have been rising especially fast. “It is increasingly clear that Chinese growth will slow from the second quarter onwards,” says Crédit Agricole.
“This will limit [the] potential for recovery in Asia.” As GDP growth slowed last year, the government upped spending and ensured that lending increased again. But with the government concerned about inflation, overcapacity and more bad loans in the banking system, it was wary of stimulating too much.
The economy is already “hooked on credit”, notes Capital Economics. In 2008 total outstanding credit at non-financial institutions was 130% of GDP – now it’s 187%. Fears that rampant corporate investment is stoking overcapacity are especially pertinent in the property sector, which is on “a wildly unsustainable path”.
If completions continue at this rate, in five years China will be churning out 19 million new properties a year. “That would leave a colossal glut.” In sum, the government’s recent tinkering has not changed the basic problem: China is suffering from a credit bubble, which, history suggests, is likely to end with a hard landing.