China Needs Credit Growth to Reverse Slowdown: Chart of the Day

China’s economy is moving in tandem with credit expansion and the government needs to increase social financing if it wants to revive growth, according to China International Capital Corp.

The CHART OF THE DAY shows corporate and social borrowing rose at the slowest pace in more than eight years in April while the January-March 7.4 percent increase in gross domestic product was the least in six quarters. That compares with 35.3 percent credit growth in November 2009, the fastest since Bloomberg began compiling the data in 2003, followed by a GDP increase of 11.9 percent in the first quarter of 2010.

“The slowdown in social financing is the main reason for economic growth losing momentum,” said Chen Jianheng, a Beijing-based fixed-income analyst at CICC. “The government must consider policies such as easing lending limits on commercial banks and selling more bonds to help fund infrastructure projects.”

Premier Li Keqiang said on May 23 the pressure for an economic downturn is still relatively high, and the government will fine-tune policies to respond to financing difficulties in the real economy. GDP is forecast to grow 7.3 percent this year, the weakest pace since 1990, according to the median estimate in a Bloomberg survey.

The nation cracked down on shadow banking, or off-balance-sheet lending, last year in order to control debt, pushing the seven-day repurchase rate to a record 10.77 percent on June 20. China needs to deleverage because total liabilities reached 111.6 trillion yuan ($17.9 trillion) in 2012 and accounted for 215 percent of GDP, Li Yang, vice president of the government-backed Chinese Academy of Social Sciences, wrote in an article in Shanghai Securities News in December.

The Communist Party is trying to revive the economy with a range of steps including central bank loans for low-income housing while the Finance Ministry on May 28 called for faster spending of budgeted funds. Guangdong province, the largest regional economy, will allocate 64.7 billion yuan to support growth, according to a May 27 report on its website.

— With assistance by Helen Sun

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