China in April tightened its previously loose monetary policy in an effort to curb fears of new asset bubbles. State bank lending fell from a record RMB 1,891 billion in March to RMB 591.8 billion ($85.2 billion). Last month’s lending, however, was still well above the monthly levels of previous years. Besides fears of new asset bubbles and a build up of non-performing loans, critics also point to the risk of rampant inflation. While recent indicators show China still in deflationary territory, the large-scale capital injections of the last months raise the potential for high inflation in the second half of this year. Most of the loans in the first quarter this year were from state banks to government-backed infrastructure projects, with many smaller private enterprises still unable to access urgently needed credit from banks. Private investment remains weak and China’s economic recovery so far depends mostly on government initiated injection of huge volumes of new loans.
While fixed-asset investment growth in urban areas in China reached an astonishing 30.5 percent in the first four months this year, exports dropped a staggering 22.6 percent in April from a year earlier. Chinese economists point to the importance of domestic demand as Chinese export destinations in America and Europe show no significant signs of recovery yet. China’s trade surplus of $13.1 billion in April was at its lowest for a non-holiday month in more than two years. With the severe drop in export actually contributing negatively to economic growth, domestic demand and government initiated investment are all the more important for China to reach its ambitious goal of 8 percent GDP growth this year.
Chinese ports increasingly pin their hopes on rising domestic trade. As cargo throughput for overseas markets dropped more than 6 percent year-on-year in April–the sixth month of consecutive decline since November last year–Chinese ports are stepping up their investments in domestic trade infrastructure. Some of the country’s largest cargo ports, including Shenzhen-Yantian, Ningbo and Tianjin, have announced plans to add new domestic shipping routes and to increase container throughput for domestic trade.
