A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Jun 04 2015

Shifting Cyclical Outlook for China

A key question for many around the world is whether Chinese economic growth will revive anytime soon, or continue to languish. In 2013 China cracked down on rampant credit expansion, as local governments and state-owned enterprises used the shadow banking sector to circumvent regulations to finance risky investments. The government was willing to accept short-term pain for long-term gain in order to achieve more sustainable growth. As a result, by April non-bank-loan social financing was 80% lower than two years ago.

The impact of this credit crunch has been felt throughout the economy, with Q1 GDP growth easing to a six-year low. In a signal that the Chinese government is no longer willing to accept such “short-term” pain, the People’s Bank of China has lowered both its benchmark interest rate and reserve requirement ratio several times over the last half year.

ECRI has completed an intensive cyclical review, assessing our array of China-specific leading indexes covering economic growth, inflation and exports. Those forward-looking data help inform our cyclical review of the shadow banking sector and the effects that credit has on the economy. At the same time, this report provides important insights for the global economy, as commodity exporting and developed economies are impacted by the Chinese economic cycle.

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