China’s stimulus appears to be ‘finally kicking in’ as new loans hit record high, experts say
However, some analysts disagree. They say that a close reading of the recent credit numbers tells a more nuanced story and that it’s too early to call an end to the growth slowdown.
High levels of debt in a slowing economy mean that some borrowers are taking up new credit to pay off existing loans “instead of funding real economic growth,” Japanese financial firm Nomura said in a note Tuesday.
“Moreover, with dual export and property market downturns, we struggle to see how real demand for credit will increase meaningfully,” it said.
China is one of the world’s most debt-burdened economies, which was what prompted authorities to crack down on loans.But with the economic slowdown, analysts and investors say authorities had little choice but to spur lending, in a bid to pump money back to the economy — despite the risk of increasing debt.
“We think near-term, it’s good. But long-term, it is going back to the original problem actually,” Kelly Chung, senior fund manager at investment firm Value Partners in Hong Kong, told reporters Thursday.
Louis Kuijs of Oxford Economics says he expects authorities to do their best to proceed prudently, as Chinese officials “don’t want to be seen as ‘overdoing’ the stimulus and don’t want to jeopardize the achievements in terms of containing leverage and reducing financial risks.”
In a note Thursday, Kuijs said he thinks recent stimulus efforts that appear to be taking effect, combined with a “modest increase” in debt this year, will be enough for economic growth to bottom out in the second quarter.
