By Bloomberg News
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.
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.
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.
All this means more business for Chinese and international companies. Alcoa expects China’s consumption of aluminum to rise 4 percent this year, compared with its earlier prediction of zero growth, because of demand triggered by stimulus spending, Chief Executive Officer Klaus Kleinfeld said in a Sept. 3 interview.
GM sales in China last month jumped to 152,365 vehicles, a gain of more than 100 percent, as tax cuts and stimulus measures spurred demand. The Detroit-based company said its 2009 sales will rise more than 40 percent from 1.09 million last year.
The total for all automakers may increase 28 percent this year to as many as 12 million, China’s top planning agency said Sept. 5.
Auto production accounts for about 2 percent of GDP and aluminum output for about 0.5 percent, according to estimates by David Cohen, an economist in Singapore at Action Economics.
China Railway Construction Corp., the builder of more than half the nation’s railroads, saw first-half profit jump 46 percent to 2.2 billion yuan, bolstered by government spending.
“We are the beneficiary of a once-in-a-hundred-years opportunity,” Vice Chairman Ding Yuanchen told reporters Sept. 2 in Hong Kong. The company “will definitely exceed” its sales target of 266.3 billion yuan this year, he added.
Manufacturing expanded the most in 16 months in August, driven by the record lending in the first half of the year, the official Purchasing Managers’ Index showed Sept. 1. Urban investment in fixed assets such as factories and properties surged 32.7 percent in the first eight months of 2009 from a year earlier, according to the median estimate of 15 economists surveyed by Bloomberg.
China is also likely to benefit from a recovery in global trade, which the World Bank expects will record the first contraction since 1982 this year. Chinese exports may climb as much as 15 percent in 2010 after shrinking this year, said Peter Redward, head of Asian emerging-markets research in Singapore at Barclays Plc, the U.K.’s second-biggest lender.
Trade figures this week may show that China’s imports, the world’s third-largest, fell 10.5 percent in August from a year earlier, the least in 10 months, according to the Bloomberg survey median.
Excess capacity in a number of industries remains a drag on the nation’s growth for now.
Li Yizhong, China’s industry minister, ordered steel companies on Aug. 13 to refrain from expansion for the next three years. Mills can produce 660 million metric tons of steel annually and there’s demand for only 470 million tons, Li said.
Industrial profits dropped 17.3 percent in the first seven months of 2009 from a year earlier to 1.11 trillion yuan, according to the National Statistics Bureau.
“Despite a more self-evident economic turnaround in China, the prospect for the world economy remains unclear and the downside risk to external demand remains significant,” the Commerce Ministry said last month.
China still has ample resources to maintain its economic acceleration, analysts said. The nation has the world’s largest foreign-exchange reserves, at $2.1 trillion, and outstanding government debt of only 20 percent of GDP, compared with 87 percent in India, according to the International Monetary Fund.
“The government will do whatever it takes to keep growth going,” said Huang Yiping, an economics professor at Beijing University and the former chief Asia Pacific economist at Citigroup Inc., the third-largest U.S. bank.