‘China has shown signs of recovery since first quarter’

In an encouraging piece of economic calculation, credit insurer Coface has revealed that China – the world’s major demand source for African-mined raw materials – has been showing signs of economic recovery since the first quarter. Signs of recovery were visible in the 2009 first quarter, and, added Coface, included reductions in interest rates and legal reserves, fiscal stimulus plans that swelled the central government deficit to three percent of gross domestic product (GDP), and the suspension of the loan quota system. While on a year-on-year basis growth reached 6.1% in the 2009 first quarter compared to 6.8% in the 2008 fourth quarter, an analysis of the statistics on a quarter-on-quarter basis (corrected for seasonal variations) shows differently. Said Coface: “The consensus estimate is that growth reached 6% in the 2009 first quarter – up from 2% in the 2008 fourth quarter. “The credit expansion has moreover accelerated this year – up 21% in January, 24% in February, and 30% in both March and April, compared to growth of 15% in 2008.” Investment, meanwhile, grew 30% – mainly in the public sector. Despite growing unemployment, Coface noted that sales rebounded in the first quarter in the retail, automotive, and property sectors – up respectively 16%, 3% and 9%. “China's economic growth has thus bottomed-out,” said Coface, “but weaknesses nonetheless persist. “The current recovery rests almost exclusively on public sector investment and liquidity injected into the economy. Payment default risks are still mainly concentrated in the private sector.” There has also been a soaring expansion of bank credit, with the new loans granted by banks in the first quarter representing 94% of the new loans granted all last year. This, according to Coface, associated with an easing of the own funds-to-debt ratios of municipal investment companies, is expected to cause a deterioration of asset quality that already troubles Chinese financial regulators.