Newspaper article International Herald Tribune

Hints of a Credit Crunch Haunt China Economy

Newspaper article International Herald Tribune

Hints of a Credit Crunch Haunt China Economy

Article excerpt

Growth in both imports and exports slowed notably in China last month and was well below forecasts, raising concerns about weakness in the country with the world's second biggest economy.

With China's leaders preoccupied with a political struggle leading up to a once-in-a-decade leadership change set for this autumn, there are increasing signs its economy may be running into trouble.

China announced Thursday that growth in imports had unexpectedly come to a screeching halt in April -- rising just 0.3 percent from the same period a year earlier, compared with expectations for an 11 percent increase. Businesses across China appeared to lose much of their appetite for products as varied as iron ore and computer chips.

China has been the largest single contributor to global economic growth in recent years, and a sustained slowdown could pose problems for many other countries. Particularly exposed are countries that export commodities like iron ore and oil and depend on demand from China's voracious steel mills and ever-growing ranks of car owners.

Exports, a cornerstone of China's torrid economic growth over the past three decades, grew only 4.9 percent last month -- half as fast as economists had expected. And a slump in new orders over the past month at the Canton Fair, China's main marketplace for exporters and foreign buyers, suggests that overseas shipments by the world's second-biggest economy, after that of the United States, may not recover quickly.

Growth in other sectors appears to be slowing, too, particularly in real estate. Soufun Holdings, a Chinese real estate data provider, released figures Monday showing that residential land sales in the 20 largest Chinese cities had fallen 92 percent last week from the week before, as declining prices for apartments have left developers short of cash and reluctant to start further projects.

In a series of interviews during the past week, bankers and senior executives from all over China, in a range of light and heavy industries, cited a broad deterioration in business conditions. Two of them said that some tax agencies in smaller cities had been telling companies to inflate their sales and profits to make local economic growth look less weak than it really was, while reassuring the companies that their actual tax bills would be left unchanged.

There are early signs of a credit crunch, at least among private sector companies. Many seem to be asking their suppliers for more time to pay debts and complaining of cash flow problems. Zhang Jinmei, the sales manager at Qitele Group, a company that makes playground equipment in the coastal city of Wenzhou, said that local investment and lending pools there were starting to charge higher interest rates for loans, a sign of worries about creditworthiness.

"The business environment is getting tougher and tougher," said Tom Zhang, the sales manager at Hebei Haihao High Pressure Flange and Pipe Fitting Group. "Competition is very intense to get more business -- our domestic sales are down from last year, though our export sales are more or less stable."

Certainly some sectors are faring better. Car sales rose 12.5 percent in April from a year earlier, the Chinese Association of Automobile Manufacturers announced Wednesday. A clearer signal of China's economic health may emerge Friday, when the National Bureau of Statistics announces April figures for industrial production, inflation, retail sales and other key economic indicators. …

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