China recovers, world relieved, but growth concerns remain

Even the 1.4 per cent rise in the Shanghai Composite on Tuesday could not remove investor fears that Beijing’s official injection of unprecedented loans this year was delivered too fast and was too large even for the world’s third-largest economy, writes Reshma Patil.

Even the 1.4 per cent rise in the Shanghai Composite on Tuesday could not remove investor fears that Beijing’s official injection of unprecedented loans this year was delivered too fast and was too large even for the world’s third-largest economy.

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Analysts said the market — which fell a huge 5.8 per cent on Monday — was partly reacting to legitimate fears about non-performing loans, over-capacity and nervous anticipation that the government would sharply pull back credit. New lending in July was less than a quarter of the June figures.

“Fundamentals of the (Chinese) economy remain quite solid but part of the market concern, which we do not agree, is that global economic recovery may not be as good as expected,” said Qian Wang, senior China economist, JP Morgan. “The market, after the huge rally since late last year, has been looking for opportunity to sell off and book profit.”

Loans worth 7.4 trillion Yuan (($1.08 trillion or Rs 52,68,240 crore, which is more than India’s GDP) were pumped into the Chinese economy in the first half of the 2009. Most of this went to fund infrastructure projects.

Economist Tao Wang, who heads China economic research at UBS Securities in Beijing, also emphasised that the third and fourth quarter growth in China will be “stronger and stronger”.

The Chinese economy grew 7.9 per cent in the second quarter this year, indicating it was close to an official target of 8 per cent for the year.

Earlier this month, Premier Wen Jiabao assured the world that China would “unwaveringly adhere” to its proactive fiscal and moderate monetary policies and speed up economic restructuring. The impact of governmental stimulus on the economy would gradually lessen and long-term policies needed time to pay off, Wen was quoted as saying in the State-run media over the weekend.