Evident as New Vehicle Sales Soar

10-Sep-09 11:44 am

Sept. 9 (Bloomberg) -- Look no further than Alcoa Inc. and General Motors Co. for evidence that the Chinese economy is poised to accelerate even after a slump in lending growth dragged down the nation’s stock market.

Alcoa, the largest U.S. aluminum producer, is raising its forecast for global consumption of the metal on stronger demand from China. GM, the biggest overseas automaker in China, says the nation’s vehicle sales may reach 12 million, surpassing the U.S. as the world’s No. 1 market.

The benchmark Shanghai Composite Index entered a bear market, or a decline of at least 20 percent, Aug. 31 on concern a slide in new loans in July might slow production and investment. Figures for August may allay the fears: Industrial output rose the most in a year and retail sales climbed at a 15 percent annual pace, median forecasts in Bloomberg News surveys show.

“Credit tightening isn’t going to crash the economy,” said Tim Condon, head of Asia research in Singapore at ING Groep NV and a former economist at the World Bank. “It’s taking investors a little time to get their heads around this fact.”

The Shanghai index rose for a sixth day yesterday, helping pare the decline from this year’s record close on Aug. 4 to 16 percent. The measure fell 0.3 percent as of 1:04 p.m. today.

‘On Track’

A boom in lending earlier this year will be enough to sustain a pick-up in the country’s economic expansion, analysts said. China’s gross domestic product may increase 9.5 percent in 2010 after an 8.3 percent gain in 2009, the smallest in eight years, according to a Bloomberg survey of 22 economists conducted the week ending Aug. 28.

“China’s economic recovery is well on track,” said Lu Zhengwei, an economist in Shanghai at Fuzhou-based Industrial Bank Co., China’s seventh-largest bank by market value. “With the explosion of loans so far, stimulus investment won’t be affected, even if lending declines for the rest of this year.”

August new-lending figures are scheduled to be released Sept. 11 and may show a 10 percent decline to 320 billion yuan ($47 billion), according to the median estimate of nine analysts surveyed by Bloomberg. The July total was less than 25 percent of the June figure.

Loans reached a record 7.7 trillion yuan in the first half of the year, spurring concern among Chinese policy makers that a credit boom would stoke speculation in assets such as stocks and property.

While credit growth is slowing, some industries are continuing to obtain financing, helping ease any impact on the nation’s manufacturing, analysts said.

Ample Funding

Loans of more than a year, used for projects such as railways and power-generation plants, showed ample funding, said Wang Tao, an economist in Beijing at Zurich-based UBS AG, Switzerland’s largest bank by assets. Short-term credit, more likely to be used for speculative purposes, dropped, she added.

Industrial production, due for release on Sept. 11, rose at an 11.8 percent annual rate in August, after a 10.8 percent increase in July, according to the median of 15 estimates in a Bloomberg survey. Retail sales figures the same day may show a 15.3 percent gain in August from a year earlier, the biggest rise since January, economists’ estimates indicate.

To maintain the momentum, the central government has budgeted 487.5 billion yuan of stimulus spending this year and another 588.5 billion yuan in 2010 for work on projects from low-cost housing to reconstruction in Sichuan province, hit by a 7.9-magnitude earthquake in May 2008.