China's Economy Grows at 9.7% Despite Central Government Orders to Rein in Credit

China's economic growth accelerated to 9.7% in the first quarter of the year, exceeding last year's full-year growth rate of 9.1%. This rapid expansion is being driven by ambitious local authorities and a booming property sector, despite central government efforts to curb excessive credit growth. The situation has raised concerns about the health of China's economy, with officials citing worries over bank lending to questionable infrastructure and industrial projects, as well as widening power shortages.

Key Takeaways:

• China's economy grew at an official rate of 9.7% in the first quarter, with some independent economists suggesting the real growth rate could be as high as 11 or 12%.
• Ambitious local authorities are using their influence to extract loans from local banks to finance steel, aluminum, cement, property, and infrastructure projects.
• Investment projects at the local level ballooned by more than 60% in the first two months of the year, with overall fixed asset investment in the first quarter up 43% against a year earlier.
• Beijing has announced initiatives to reassert macroeconomic control, including a review of loans into sizzling sectors and a 0.5 percentage point hike in the reserve requirement ratio to 7.5% from 7%.
• Central government officials are concerned that local authorities are ignoring orders to rein in investment spending, and that raising interest rates might have unintended consequences such as appreciating the renminbi and drawing in more "hot money".
• The Chinese government is worried about the unhealthy structure of the economy, with officials citing concerns over runaway bank lending to redundant low-quality construction projects.

Statistics:

• China's economy grew at an official rate of 9.7% in the first quarter of 2023.
• Fixed asset investment in the first quarter increased by 43% compared with the same period in 2022.
• Loans into sizzling sectors such as aluminum, steel, cement, property, and automobiles grew significantly, with some projects showing over 60% growth in the first two months of the year.
• The China Banking Regulatory Commission withdrew about Rmb110bn (Euros 11bn) from the banking sector by raising the minimum reserve requirement ratio to 7.5% from 7%.
• The People's Bank of China has raised the reserve requirement ratio twice in two weeks, with the latest increase taking the requirement to 7.5%.

Sources:

• "China's Economy Grows at 9.7% Amid Central Government Concerns", by James Kyunge Beijing for SCMP.
• National Bureau of Statistics of China, Beijing, China.