China’s economy is proving less responsive to credit, as money pumped in, generating less growth

China had snapped seven quarters of decelerating growth in the fourth quarter only to slow again in the first three months of 2013, as China’s economy is proving less responsive to credit, escalating pressure on Premier Li Keqiang to strengthen the role of private enterprise. Since taking office in March, Li Keqiang, China’s premier, has pledged to reduce government interference and boost the role of private companies. The government’s broadest measure of credit rose 58 percent to a record 6.16 trillion yuan ($1 trillion) in January-to-March, when gross domestic product gained 7.7 percent, compared with 8.1 percent a year earlier. Each $1 in credit firepower added the equivalent of 17 cents in GDP, down from 29 cents last year and 83 cents in 2007, when global money markets began to freeze, according to data compiled by Bloomberg. The diminishing returns to lending heighten focus on the need for what the International Monetary Fund said yesterday are “decisive” policy changes in the world’s second-largest economy. Without a refocus away from state-approved projects, Li and President Xi Jinping risk overseeing both a further slowdown in growth and an increase in non-performing loans. “Less efficient and more highly leveraged borrowers have been kept afloat, tying up credit that could be used to generate more growth,” said David Loevinger, former senior coordinator for China affairs at the U.S. Treasury Department. “To boost growth, China needs to channel more financing to its private enterprises, which are both more profitable and less leveraged than their state-owned counterparts.” (Source)

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s