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China Beige Book Signals Limits on Rebound on Loan Demand

Xi Jinping
Xi Jinping, general secretary of the Communist Party of China. Photographer: Andrew Harrer/Bloomberg

China’s economic rebound is uneven, with improvements in retailing, real estate and mining countered by rising inventories and lower corporate borrowing, according to a report modeled on the U.S. Federal Reserve’s Beige Book.

While shopping outlets and services companies are optimistic, credit conditions signal “this is not yet a period of strong expansion,” CBB International LLC, a New York-based researcher, said in an e-mailed summary of its China Beige Book.

The new Communist Party leadership headed by Xi Jinping aims to sustain the expansion of the world’s second-biggest economy without fueling property-price gains or adding to banks’ bad-loan risks. The World Bank says growth may be as much as 8.4 percent next year after a likely 7.9 percent expansion in 2012, set to be the weakest pace since 1999.

“The economy as a whole saw an uneven rebound in the fourth quarter, driven by strength in retail, real estate, mining and to a lesser extent, manufacturing,” said Leland Miller, New York-based president of China Beige Book International. “But serious structural issues remain, including expanding manufacturing and mining inventories and credit-easing policies that continue to yield increasingly diminished returns.”

The Shanghai Composite Index rose 0.3 percent yesterday to 2,219.13, its highest in five months, after wiping out this year’s losses of as much as 11 percent Dec. 25. Poly Real Estate Group Co. and Gemdale Corp. climbed at least 1.9 percent as the Shanghai Securities News reported residency controls in smaller cities will be loosened.

The next reading on the economy will come from a report on industrial companies’ profits, due to be released today.

2,000 Businesses

The China Beige Book’s findings are based on a survey of more than 2,000 businesses and interviews with company executives, bank loan officers and branch managers. The poll, which charts comparisons with the previous three-month period, was carried out from Oct. 26 to Dec. 2. The full report will be released in mid-January.

Official data painted a mixed picture of the economy in November, with new loans and exports trailing economists’ median estimates as industrial output and retail sales exceeded forecasts. Banks extended 522.9 billion yuan ($84 billion) of local-currency loans.

Iron-ore producers strengthened “sharply” as steel demand rose from housing, infrastructure and manufacturing, according to the China Beige Book summary. At the same time, faster gains in inventories in manufacturing and mining call into question “just how sustainable this expansion is,” CBB said.

Credit Easing

While credit is still easing, bankers are cautious and borrowing costs are rising, with fewer companies taking out bank loans and more turning to so-called shadow lenders, the survey found. “This mismatch is at the heart of China’s conflicting stories about stimulus,” CBB said.

China’s growth probably accelerated this quarter after the government accelerated investment-project approvals, and cut interest rates in June and July. The median estimate in a Bloomberg News survey of 34 economists is for a gain of 7.8 percent from a year earlier, up from 7.4 percent in the previous three months.

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