Chinese money trends weakening again
Simon Ward
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Chinese October activity news last week was satisfactory but slower monetary expansion suggests that further policy easing is required to keep economic growth on track.
Industrial output rose by a seasonally-adjusted* 0.7% last month after a 1.7% in gain in September. Six-month growth reached its highest since January. The recent pick-up was foreshadowed by an increase in official and Markit manufacturing purchasing managers’ new orders indices between March and July. These have since fallen back but remain consistent with a further near-term growth recovery – see first chart.
Recent measures to stabilise the housing market, meanwhile, may be bearing fruit, with the annual fall in floorspace sold slowing sharply to 3.4% in October from 12.1% in September. Prices lag sales but their rate of decline may be approaching a bottom – second chart.
October money and credit figures, by contrast, were downbeat. Six-month growth of real M2 fell to its lowest since November 2013 while the narrower M1 measure contracted. M2 outperforms M1 as a leading indicator of the economy in China and is not yet flashing red. The growth decline, however, suggests that the current economic pick-up will give way to another slowdown from early 2015 without additional policy stimulus. 
*Based on World Bank seasonal adjustments.
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