Chinese monetary trends still soft
Simon Ward
Post a Comment
Monetary trends and survey evidence continue to suggest that the Chinese economy will slow into early 2014.
Activity strengthened over the summer, with six-month growth in industrial output* reaching a 15-month high in September. This followed respectable real money expansion in early 2013 – see first chart. Improving prospects were confirmed by a rise in the official purchasing managers’ new orders index** from the spring.
Real broad and narrow money growth, however, slowed sharply after April, the latter falling well beneath its historical average. October figures today were soft again. This warning signal has received tentative support from a fall in the new orders index since August, although the current reading remains respectable. Six-month output expansion ticked down in October, possibly marking the start of a downshift.
The tightening of monetary conditions is a side-effect of official efforts to clamp down on excessive non-bank credit creation. The one-month repo rate, a gauge of money market liquidity, was below the levels of the last two years in early 2013 but is now significantly higher – second chart. Ongoing policy restriction suggests that monetary trends will remain subdued.
*Level series estimated from official data and seasonally adjusted.
**Seasonal adjustment applied to published data.
View Printer Friendly Version
Email Article to Friend
Reader Comments