China: Doubts cast on the economic potency of credit expansion

New evidence suggests that the Chinese housing sector has likely entered into an inexorable decline. More ominously, the once seemingly airtight bond between government-led credit expansion and the vibrancy of China’s housing markets and related industries is fraying. For a government that has staked its political legitimacy largely on its ability to maintain stable economic growth and high employment, the corrosion of credit as a tool for economic management is undoubtedly worrisome.

According to data released Monday Sept. 15 by China’s National Bureau of Statistics, Chinese industrial production grew by only 6.9 percent year-on-year in August, the lowest such rate since May 2009. Likewise, investment declined in August in real estate construction, infrastructure development and manufacturing, relative to historical levels.