Ho Woei Chen, CFA, an economist at UOB Group, discusses the recent results of China’s credit expansion.
“China’s credit expansion reached a nadir in 3Q2020, which is cause for concern because it signals a slowdown in the country’s economic activities. We expect the credit impulse to turn negative in late-2021, the first time since the second half of 2018. This is predicted to coincide with an economic cycle slump in China.”
“Given the shifting economic structure, we believe there is possibility for improvement in credit efficiency, which means that slower credit expansion may not inevitably stifle economic growth. For example, enhanced credit allocation to the services sector vs the industrial sector, which is prone to overcapacity and inefficiencies, could boost the medium to long-term economic prospects.”
“In the medium term, we believe the forecast for 2022 will be even brighter, fuelled by the long-awaited reopening of international borders, while sustained external demand will soften the impact of domestic policies that are less expansionary. With our full-year growth projection, we expect China’s GDP growth to slow to 8.0 percent y/y in 2Q21 from 18.3 percent y/y in 1Q21 “ection rate of 9.1%.”/n
