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March 30, 2015

Chart Of The Week: China Momentum Indicator Falls To 2.8% In February

by Fathom Consulting.

Fathom’s China Momentum Indicator (CMI) – an alternative measure of growth in what according to the IMF is now the world’s largest economy – fell to 2.8% in February.

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Growth of 2.8% is close to our forecast for growth through the year as a whole, of 2.0%. The shortage of official data through the Chinese New Year means that we have not updated the CMI since December, when it stood at a downwardly-revised 3.5%.

The CMI is based on three ‘easy-to-measure’ indicators of economic activity favoured by Premier Li Keqiang. These are: rail freight volumes; electricity production; and credit growth. Rail freight volumes are volatile from month to month, and strongly seasonal. Nevertheless, the fall in February was substantial, and accounts for much of the weakness in our CMI. Electricity production fell by 7.6% through January and February compared with the same period a year ago.

Credit growth strengthened a little on the month, perhaps in response to cuts in the main policy rates of interest towards the end of last year. The Agricultural Bank of China last week announced that profits had fallen by the most in three years. At the same time, it revised up its estimate of non-performing loans to a new record of just over 1.5% of all assets. Our firm view is that China’s non-performing loan problem is far, far larger than official statistics suggest. We estimate that non-performing loans across the banking system as a whole are equal to around 21% of GDP – or close to 8% of bank assets.


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