Overnight and this past weekend we saw a lot of positive economic data that point to an economic recovery in China.
Industrial production, fixed asset investment, and retail sales came in stronger than expected. We also saw exports surge, and a marked improvement in China’s manufacturing sector. Credit growth picked up nicely as well.
But this robust data could be short-lived.
First, industrial production which was up 10.4% was driven by infrastructure investment. Infrastructure fixed asset investment (FAI) was up 32% on the year in August, compared with 22.8% YoY in July.
“The dominating role of infrastructure played in the sudden turn-around confirms our concern over the sustainability,” writes Societe Generale’s Wei Yao who reminds us that aggressive government spending can’t go on forever.
Overall money and total credit growth were up. M2, a broad measure of money supply was up 14.7% YoY. Total social financing, which includes outstanding bank loans, trust and entrusted loans, bankers’ acceptance, and corporate bonds, surged to 1.58 trillion yuan, almost double that of July.
We’ve already pointed out that it’s taking more and more credit growth to deliver less economic growth in China, and that this is one of the main bear arguments on China at the moment.
“Our call for a very short-lived growth recovery hinges on the expectation that China’s credit growth would continue to decelerate as policymakers aim for (slow) deleveraging. If credit growth picks up persistently from here, China’s current growth recovery may well last bit longer and go bit further. However, that only adds to the downside risk afterwards, as the leverage of Chinese corporates and local governments keeps rising from the already alarmingly high level.”
Bottom-line: While the numbers seem strong, it is becoming increasingly expensive to juice the stats.