A post in June expressed modest optimism about Chinese economic prospects. August data confirm that activity has firmed: six-month growth in industrial output rose to 5.4% (not annualised) from a recent low of 3.3% in April.
Monetary trends, however, caution against extrapolating this improvement. Six-month rates of change of real M1 and M2 recovered in August but remain lower than in the spring – see chart. Real bank lending has been growing faster but has been boosted by “reintermediation” due to a clampdown on off-balance-sheet and non-bank credit; real social financing – a broad credit measure – has slowed.
A stronger global economy should support exports and industrial activity over the remainder of 2013 but sluggish monetary trends suggest subdued domestic demand and moderate overall expansion.
