China's economy stabilizes after banks open

BEIJING – The Chinese economy has stabilized in the first three months of the year, according to official figures released Wednesday after Beijing flooded the financial system with money, which would have been difficult to stop a slowdown.

The authorities said the Chinese economy, the world's second-largest economy, grew 6.4 percent in the first quarter of this year compared to the same period in 2018. The pace was comparable to that of the fourth quarter when growth was dampened by the decline in the number of purchases, private firms asked for help.

Economists generally view China's economic figures with skepticism, but point to further signs that the current slowdown in China may have bottomed out. Other figures suggest that buyers are back at the box office, that factory production is increasing and that the world, after several difficult months, is buying more Chinese products. Beijing needs such encouraging signs to try to reach a trade deal with the Trump administration, while she is under pressure to improve living conditions in her country.

The economic growth recorded so far this year "laid the solid foundation for stable and healthy economic development for the whole year," said Mao Shengyong, spokesman for the National Bureau of statistical.

There is a caveat: signs of improvement are unlikely to be the result of a sudden surge of confidence among Chinese business leaders in the strength of the country's economy.

On the contrary, the positive glow is largely the result of the hundreds of billions of dollars that Beijing has injected into the country's economy in recent months and the loans that officials have forced the banks to obtain. All of this comes at a cost, and it raises a question about Beijing's willingness to spend to maintain growth.

"This time, they used overwhelming force to revive the economy," said Larry Hu, chief economist of the Macquarie Group in China. "That's why the economy has stabilized in the first quarter."

The chances of a "double dip", in which growth would fall before resuming later this year, are high, Hu added. "The recovery is not as strong," he said. "They strengthened the firepower of politics at the beginning of the year."

In many ways, Chinese policymakers are returning to a previous approach: providing more loans in exchange for increased confidence in the short term. The strategy has helped sustain growth over the past decade, even after the global financial crisis of 2008. But the country has been in debt with a debt that threatens to hinder the economy in the years to come.

At the beginning of China's explosion, local businesses and governments could borrow freely, knowing that faster growth could help make their bets profitable. Now that the country's economy is huge and maturing, it has become increasingly difficult for China to simply get out of debt.

"China is already going through the biggest credit bubble the world has ever known," said Victor Shih, associate professor at the University of California at San Diego. And, added Professor Shih, the Chinese government has not been able to wean itself off its debt.

"The government simply can not afford to think in the medium term and must focus on the short-term pursuit of the credit bubble," he said.

The latest round of government-sponsored financial largesse was of noteworthy size and scale, economists said.

The largest measure of new borrowing in China, known as total social finance, jumped to $ 1.2 trillion in the first quarter, while bank lending reached a record $ 865 billion, Hu said. Macquarie Group.

Local governments, encouraged by the central government, raised $ 100 billion in new money in the form of special bonds, against only $ 11.5 billion in the first quarter of last year, while The same local governments had been reprimanded for borrowing too much and concealing their debts.

This money started appearing in the economic data Wednesday, with 6.3% spending for gigantic infrastructure projects like toll roads and new subway lines.

On Tuesday, the Organization for Economic Co-operation and Development (OECD) warned of the potential risks of such heavy borrowing, saying it could lead to bigger economic imbalances in the future. The organization revised its growth outlook for China to 6.2 percent for this year and to 6 percent for 2020, due to increased risks of housing collapse and increasing geopolitical tensions.

China is "a major driver of global economic growth, even though it is facing an economic slowdown," Ludger Schuknecht, deputy secretary-general of the organization, said in a report.

"Yet China is at a crossroads and faces serious domestic and external challenges to maintain its strong position over the long term," said Schuknecht. The organization also warned that the trade war between the country and the United States would weigh on exports and overall growth.

While it is looking for engines to fuel growth globally, the world needs China to economically draw on it. Last year, Beijing announced that growth had slowed its slowest pace since 1990 as more and more signs indicated that the trade war was already beginning to wreak havoc, which frightened investors. New export orders have fallen to record levels for several years, prompting factories to reduce overtime and send workers home earlier than expected before the holiday season in China.

Businesses seemed to have more resources to hire and develop in the first three months of the year. Part of this was the result of a Last year, the central bank committed to inject $ 175 billion into the system, mainly to help small and medium-sized businesses.