China’s economic growth rate continues to slow, both on official and survey-based measures. Our own China Momentum Indicator (CMI) for April suggests that growth could be as low as 2.8%.
Last week it was announced that May’s official business activity PMI for the non-manufacturing sector in China had slipped to its lowest level since December 2008. It is interesting to note that until early 2013, both our measure of China’s economic growth rate and the official PMI data for the non-manufacturing sector broadly tracked China’s GDP statistics. Since then, the wedge has widened — again calling into disrepute the reliability of China’s official data.
Nominal bank lending, one of the three indicators used to create our CMI, rose by just 0.8% between March and April. This is despite a raft of stimulus measures, demonstrating that the People’s Bank of China is struggling to achieve policy traction. It is not surprising that banks are reluctant to lend when their profit margins are under assault. Just last month, China’s banks were ordered to make loans to local government projects even if the returns to those ventures were so poor that the borrower was unlikely to ever repay the interest or principal loan amount. This will only add to China’s woes, with non-performing loans already estimated by Fathom to be equivalent to around 21% of GDP.
