China Center Data Flash: Credit where credit isn’t due—the continuing structural deterioration in Q1

Data Flash is a brief interpretive summary of China’s official monthly economic data release. 

  • On April 15, Q1 growth was officially announced as 6.7 percent. The construction and real estate sectors were the primary growth drivers in the quarter. While some declared a cyclical rebound, we disagree. It is, once again, investment-driven, stimulus-induced growth exacerbated, in the case of real estate, by clumsy and erratic government policy.
  • New lending in Q1 rose by RMB 4.6 trillion, 25 percent more than in Q1 2015, indicating that the administration has switched to re-leveraging measures in its effort to boost short-term growth.
  • That said, the government stated in the Premier’s Economic Work Report address to the NPC on March 14 that achieving the targeted, 5-year average 6.5 percent per annum growth rate was of paramount importance and that the government would, among other things, use above-average money and credit growth to achieve the target. It is doing just that.
  • The ongoing leveraging-up is reigniting real estate bubbles, and inflation is on the rise. This, plus the continued forestalling of both debt de-leveraging and productivity-enhancing reforms, heightens the risk of increased market volatility and financial market instability in the near to medium term.

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