Chinese monetary trends signal a recovery in the economy in late 2012 and early 2013 but growth may remain below-par by recent standards.

Chinese analysts, like those elsewhere, tend to focus on credit rather than money, while preferring the broader M2 measure to narrow money M1. Real (i.e. CPI-adjusted) M1, however, continues to outperform as a leading indicator, as it has in a wide range of countries. A contraction in real M1 in early 2012 signalled recent economic weakness, even as bank loans and M2 were growing respectably – see chart.

Real M1 has revived since mid-year but six-month growth in September was moderate rather than strong – 4.2% (not annualised) versus an average of 6.1% since 2005. Pending further improvement, China may lag the global economic upswing expected here on the basis of monetary trends and recent leading indicator data – in contrast to 2009, when a Chinese boom drove a V-shaped recovery in world industrial output.