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Foundry Daily News

22. September 2009

Rays of recovery - New vehicle sales soar in China

Bloomberg reported that 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 US 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 vehicle sales may reach 12 million surpassing the US as the world’s No 1 market.

Median forecasts in Bloomberg News surveys show that the benchmark Shanghai Composite Index entered a bear market or a decline of at least 20% August 31st 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% annual pace.

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

According to a Bloomberg survey of 22 economists conducted the week ending August 28th a boom in lending earlier this year will be enough to sustain a pick up in the country’s economic expansion. China’s gross domestic product may increase 9.5% in 2010 after an 8.3% gain in 2009 the smallest in eight years.

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

Loans reached a record CNY 7.7 trillion in the H1 of the year, spurring concern among Chinese policy makers that a credit boom would stoke speculation in assets such as stocks and property.

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

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

To maintain the momentum, the central government has budgeted CNY 487.5 billion of stimulus spending this year and another CNY 588.5 billion 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.

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