As China&#39;s economy notches up another quarter of steady growth, the pace of credit creation grows ever more frantic for every extra unit of production, as inefficient state firms swallow an increasing share of lending. 
 
The world&#39;s second-largest economy grew 6.7 per cent in the first half of the year, unchanged from the first quarter, testament to policymakers&#39; determination to regulate the pace of slowdown after 25 years of breakneck expansion. 
 
Analysts say that determination has come at the cost of a dangerous rise in debt which is six times less effective at generating growth than a few years ago. 
 
&quot;The amount of debt that China has taken in the last 5-7 years is unprecedented,&quot; said Morgan Stanley&#39;s head of emerging markets, Ruchir Sharma, at a book launch in Singapore. &quot;No developing country in history has taken on as much debt as China has taken on on a marginal basis.&quot; 
 
While Beijing can take comfort that loose money and more deficit spending are averting a more painful slowdown, the rapidly diminishing returns from such stimulus policies, coupled with rising defaults and non-performing loans, are creating what Sharma calls &quot;fertile (ground) for some accident to happen&quot;. 
 
From 2003 to 2008, when annual growth averaged more than 11 per cent, it took just one Yuan of extra credit to generate one Yuan of GDP growth, according to Morgan Stanley calculations. 
 
It took two for one from 2009-2010, when Beijing embarked on a massive stimulus programme to ward off the effects of the global financial crisis. 
 
The ratio had doubled again to four for one in 2015, and this year it has taken six Yuan for every Yuan of growth, Morgan Stanley said, twice even the level in the United States during the debt-fuelled housing bubble that triggered the global crisis. 
 
Total bond debt in China is up over 50 per cent in the past 18 months to 57 trillion Yuan ($8.5 trillion), equal to around 80 per cent of GDP, and new total social financing, the widest measure of credit provided by China&#39;s central bank, rose 10.9 per cent in the first half of 2016 to 9.75 trillion Yuan. 
 
Short termism 
 
China&#39;s money supply has increased in tandem with new lending, and at 149 trillion Yuan is now 73 per cent higher than in the United States, an economy about 60 per cent larger. 
 
&quot;China is the largest money printer in the world - they have been for some time. The balance is really extreme,&quot; says Kevin Smith, CEO of US-based Crescat Capital. 
 
The reason China gets such poor returns from this pump-priming is that state firms are the main beneficiaries of extra credit, at the expense of the more efficient private sector. 
 
Some of the slowdown in private sector growth is weak confidence in the business outlook, but a lack of access to affordable financing is also a factor, the government and economists say, as banks prefer the security of state-owned borrowers. 
 
Private firms had to pay 6 percentage points more in interest for bank loans in the second quarter versus the public sector, analysts at investment bank CICC estimate. 
 
Though Beijing officially wants to rebalance the economy to the private sector and cut surplus capacity in inefficient heavy industry, that aspiration clashes with its more immediate ambition to hit its growth targets. 
 
For now it seems the latter goal is over-riding the former. 
 
Policymakers say that while corporate debt is high, the central government has room to increase its debt ratios and raise its fiscal deficit to between 4 and 5 per cent to boost the economy. 
 
And analysts expect more monetary easing in the form of interest rate cuts, which will encourage more borrowing and more bad debts. 
 
&quot;We believe that China&#39;s short-termism will only add to its long-standing problems of excess capacity and non-performing loans,&quot; Fathom Consulting analyst Laura Eaton wrote in a note following the release of first-half GDP data. 
 
Smith at Crescat Capital thinks it will lead to a twin currency and banking crisis, with a 20 per cent crash in the Yuan versus the dollar. 
 
&ldquo;It&rsquo;s a question of when, and it looks like it&rsquo;s coming pretty close,&quot; he said. 
 
(Reuters) 
 
&nbsp;

Decline in returns accompanied by increase in defaults and non-performing loans is creating a platform for a major mishap in Chinese economy

As China's economy notches up another quarter of steady growth, the pace of credit creation grows ever more frantic for every extra unit of production, as inefficient state firms swallow an increasing share of lending. The world's second-largest economy grew 6.7 per cent in the first half of the year, unchanged from the first quarter, testament to policymakers' determination to regulate the pace of slowdown after 25 years of breakneck expansion. Analysts say that determination has come at the cost of a dangerous rise in debt which is six times less effective at generating growth than a few years ago. "The amount of debt that China has taken in the last 5-7 years is unprecedented," said Morgan Stanley's head of emerging markets, Ruchir Sharma, at a book launch in Singapore. "No developing country in history has taken on as much debt as China has taken on on a marginal basis." While Beijing can take comfort that loose money and more deficit spending are averting a more painful slowdown, the rapidly diminishing returns from such stimulus policies, coupled with rising defaults and non-performing loans, are creating what Sharma calls "fertile (ground) for some accident to happen". From 2003 to 2008, when annual growth averaged more than 11 per cent, it took just one Yuan of extra credit to generate one Yuan of GDP growth, according to Morgan Stanley calculations. It took two for one from 2009-2010, when Beijing embarked on a massive stimulus programme to ward off the effects of the global financial crisis. The ratio had doubled again to four for one in 2015, and this year it has taken six Yuan for every Yuan of growth, Morgan Stanley said, twice even the level in the United States during the debt-fuelled housing bubble that triggered the global crisis. Total bond debt in China is up over 50 per cent in the past 18 months to 57 trillion Yuan ($8.5 trillion), equal to around 80 per cent of GDP, and new total social financing, the widest measure of credit provided by China's central bank, rose 10.9 per cent in the first half of 2016 to 9.75 trillion Yuan. Short termism China's money supply has increased in tandem with new lending, and at 149 trillion Yuan is now 73 per cent higher than in the United States, an economy about 60 per cent larger. "China is the largest money printer in the world - they have been for some time. The balance is really extreme," says Kevin Smith, CEO of US-based Crescat Capital. The reason China gets such poor returns from this pump-priming is that state firms are the main beneficiaries of extra credit, at the expense of the more efficient private sector. Some of the slowdown in private sector growth is weak confidence in the business outlook, but a lack of access to affordable financing is also a factor, the government and economists say, as banks prefer the security of state-owned borrowers. Private firms had to pay 6 percentage points more in interest for bank loans in the second quarter versus the public sector, analysts at investment bank CICC estimate. Though Beijing officially wants to rebalance the economy to the private sector and cut surplus capacity in inefficient heavy industry, that aspiration clashes with its more immediate ambition to hit its growth targets. For now it seems the latter goal is over-riding the former. Policymakers say that while corporate debt is high, the central government has room to increase its debt ratios and raise its fiscal deficit to between 4 and 5 per cent to boost the economy. And analysts expect more monetary easing in the form of interest rate cuts, which will encourage more borrowing and more bad debts. "We believe that China's short-termism will only add to its long-standing problems of excess capacity and non-performing loans," Fathom Consulting analyst Laura Eaton wrote in a note following the release of first-half GDP data. Smith at Crescat Capital thinks it will lead to a twin currency and banking crisis, with a 20 per cent crash in the Yuan versus the dollar. “It’s a question of when, and it looks like it’s coming pretty close," he said. (Reuters)

China averts slowdown, risks dangerous rise in debt numbers

China&#39;s economy expanded more than expected in the second quarter of the year, data showed today, fuelling hopes growth may be stabilising, but analysts warned private investment still needed to pick up. 
 
The world&#39;s second biggest economy grew 6.7 per cent year on year in April-June, slightly quicker than forecast in an AFP survey and the same as the previous three months. 
 
The result is also in line with the government&#39;s 6.5-7.0 target for the full year and will provide some much-needed relief as China and key driver of the global economy suffers its worst rates of growth for 25 years. 
 
&quot;The national economy has achieved moderate but steady and sound development,&quot; National Bureau of Statistics spokesman Sheng Laiyun said, adding he was confident that the annual growth target could be achieved. 
 
Markets were unmoved by the figures, with Shanghai&#39;s composite index ending the morning slightly lower. 
 
However, economists analysts said the growth was driven by state investment in infrastructure and a real-estate rebound, suggesting it may be hard to maintain in the longer-term. 
 
&quot;China is on track of achieving this year&#39;s growth target,&quot; said Haibin Zhu, JP Morgan China chief economist. But he added that while industrial production was &quot;very strong&quot;, private investment was weak. 
 
After decades of breakneck growth policymakers are now trying to retool the economy, embracing weaker growth as a trade-off for structural reforms to wean the country off cheap exports and massive government spending in favour of domestic consumption. 
 
But the transition has proved challenging. 
 
Fixed asset investment, a gauge of infrastructure spending, rose nine per cent in the first half of the year, amid a record credit binge in the first quarter aimed at stimulating China&#39;s slowing economy. 
 
Investment concern 
 
And investment by private businesses grew by less than three percent in the first half of the year, the data showed. 
 
Sheng blamed the slowdown in private investment on overcapacity in traditional industries, barriers for private firms to enter some sectors, and limited access to loans. 
 
Tom Rafferty of the Economist Intelligence Unit said &quot;levels of state investment we have seen are not sustainable if the authorities are at all serious about curbing debt risks&quot;. 
 
The &quot;greatest concern&quot; is the slide in investment by private firms, he added, in a sign that businesses are worried about the wider economy and Beijing is &quot;failing to deliver on promised market reforms&rdquo;. 
 
Factory production and consumer spending grew slightly, and industrial output rose over six per cent on year in June, a slight increase on the previous month, although retail sales rose far more than expected. 
 
The data come days after another downbeat reading on trade, which showed the fall in imports and exports accelerated in June. 
 
Klaus Baader, Hong Kong-based chief economist for Asia Pacific of Societe Generale, said: &ldquo;I think it has been engineered by significant reacceleration in credit growth. He added that the growth figure was &quot;a little bit disappointing&quot;, given the scale of lending expansion. 
 
Official Chinese figures are viewed with widespread scepticism, and just days ago the government altered its growth calculation method for the second time in less than a year. 
 
Today&#39;s figures &quot;should be taken with a grain of salt&quot; because of the political pressures on officials to meet the growth target, research firm Capital Economics said in a note. 
 
(AFP)

The world's second biggest economy grew 6.7 per cent year on year in April-June, slightly quicker than AFP forecast

China's economy expanded more than expected in the second quarter of the year, data showed today, fuelling hopes growth may be stabilising, but analysts warned private investment still needed to pick up. The world's second biggest economy grew 6.7 per cent year on year in April-June, slightly quicker than forecast in an AFP survey and the same as the previous three months. The result is also in line with the government's 6.5-7.0 target for the full year and will provide some much-needed relief as China and key driver of the global economy suffers its worst rates of growth for 25 years. "The national economy has achieved moderate but steady and sound development," National Bureau of Statistics spokesman Sheng Laiyun said, adding he was confident that the annual growth target could be achieved. Markets were unmoved by the figures, with Shanghai's composite index ending the morning slightly lower. However, economists analysts said the growth was driven by state investment in infrastructure and a real-estate rebound, suggesting it may be hard to maintain in the longer-term. "China is on track of achieving this year's growth target," said Haibin Zhu, JP Morgan China chief economist. But he added that while industrial production was "very strong", private investment was weak. After decades of breakneck growth policymakers are now trying to retool the economy, embracing weaker growth as a trade-off for structural reforms to wean the country off cheap exports and massive government spending in favour of domestic consumption. But the transition has proved challenging. Fixed asset investment, a gauge of infrastructure spending, rose nine per cent in the first half of the year, amid a record credit binge in the first quarter aimed at stimulating China's slowing economy. Investment concern And investment by private businesses grew by less than three percent in the first half of the year, the data showed. Sheng blamed the slowdown in private investment on overcapacity in traditional industries, barriers for private firms to enter some sectors, and limited access to loans. Tom Rafferty of the Economist Intelligence Unit said "levels of state investment we have seen are not sustainable if the authorities are at all serious about curbing debt risks". The "greatest concern" is the slide in investment by private firms, he added, in a sign that businesses are worried about the wider economy and Beijing is "failing to deliver on promised market reforms”. Factory production and consumer spending grew slightly, and industrial output rose over six per cent on year in June, a slight increase on the previous month, although retail sales rose far more than expected. The data come days after another downbeat reading on trade, which showed the fall in imports and exports accelerated in June. Klaus Baader, Hong Kong-based chief economist for Asia Pacific of Societe Generale, said: “I think it has been engineered by significant reacceleration in credit growth. He added that the growth figure was "a little bit disappointing", given the scale of lending expansion. Official Chinese figures are viewed with widespread scepticism, and just days ago the government altered its growth calculation method for the second time in less than a year. Today's figures "should be taken with a grain of salt" because of the political pressures on officials to meet the growth target, research firm Capital Economics said in a note. (AFP)

China economy beats growth forecasts in Q2

Growth in China&#39;s manufacturing sector slowed slightly in June, official data showed on Friday. 
 
The official purchasing managers&#39; index (PMI) came in at 50 in June, down from May&#39;s 50.1, according to statistics from the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing. 
 
The PMI is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The purpose of the PMI is to provide information about current business conditions to company decision makers, analysts and purchasing managers. 
 
A reading above 50 indicates expansion, while one below 50 points to contraction. 
 
High-technology manufacturing and equipment manufacturing are among the industries which expanded, with PMI readings hitting 51.3 and 51.1 respectively, both up 0.5 from the previous month. 
 
On the other hand, growth shrank in some traditional and energy-consuming industries plagued by overcapacity. The PMI reading for the steel industry, for example, plunged 5.8 to 45.1. 
 
&quot;The slide in the PMI figure for black metal smelting and steel rolling, or the steel industry in general, is more significant when compared with high energy-consuming industries and the manufacturing sector as a whole,&quot; said Zhao Qinghe, a senior statistician with the NBS. 
 
China&#39;s manufacturing PMI readings have stayed above 50 since February this year amid easing downward pressure, but the momentum has been less than strong due in part to global economic uncertainties, according to analysts. 
 
The British vote to exit the European Union last week, in particular, is likely to put additional pressure on global growth and China&#39;s foreign trade, said Cai Jin, vice president at the China Federation of Logistics and Purchasing. 
 
&quot;I think the impact of those uncertainties will continue to deepen. The growing number of uncertainty factors that have emerged this year will no doubt weigh on China&#39;s economy,&quot; he explained. 
 
&quot;But on the whole, the Chinese economy is undergoing a transition from heavy reliance on foreign demand to relying on domestic demand, so the impact of the uncertainty factors will be limited. I think the economy will grow within a reasonable and appropriate range of between 6.5 per cent and 7 per cent in the second quarter,&quot; Cai added. 
 
China&#39;s gross domestic product grew by 6.7 per cent year on year in the first quarter of 2016.&nbsp; 
 
(Reuters)

The official purchasing managers' index drops from 50.1 to 50

Growth in China's manufacturing sector slowed slightly in June, official data showed on Friday. The official purchasing managers' index (PMI) came in at 50 in June, down from May's 50.1, according to statistics from the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing. The PMI is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. The purpose of the PMI is to provide information about current business conditions to company decision makers, analysts and purchasing managers. A reading above 50 indicates expansion, while one below 50 points to contraction. High-technology manufacturing and equipment manufacturing are among the industries which expanded, with PMI readings hitting 51.3 and 51.1 respectively, both up 0.5 from the previous month. On the other hand, growth shrank in some traditional and energy-consuming industries plagued by overcapacity. The PMI reading for the steel industry, for example, plunged 5.8 to 45.1. "The slide in the PMI figure for black metal smelting and steel rolling, or the steel industry in general, is more significant when compared with high energy-consuming industries and the manufacturing sector as a whole," said Zhao Qinghe, a senior statistician with the NBS. China's manufacturing PMI readings have stayed above 50 since February this year amid easing downward pressure, but the momentum has been less than strong due in part to global economic uncertainties, according to analysts. The British vote to exit the European Union last week, in particular, is likely to put additional pressure on global growth and China's foreign trade, said Cai Jin, vice president at the China Federation of Logistics and Purchasing. "I think the impact of those uncertainties will continue to deepen. The growing number of uncertainty factors that have emerged this year will no doubt weigh on China's economy," he explained. "But on the whole, the Chinese economy is undergoing a transition from heavy reliance on foreign demand to relying on domestic demand, so the impact of the uncertainty factors will be limited. I think the economy will grow within a reasonable and appropriate range of between 6.5 per cent and 7 per cent in the second quarter," Cai added. China's gross domestic product grew by 6.7 per cent year on year in the first quarter of 2016. (Reuters)

Manufacturing growth in China slows

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China averts slowdown, risks dangerous rise in debt numbers

China economy beats growth forecasts in Q2

Manufacturing growth in China slows