China’s economic growth may be looking at another rough quarter

BEIJING — China’s economic numbers in the last few months have disappointed expectations but the worst is not over — analysts are in a family way third quarter data to come in even weaker than before.

A quarterly survey by China Beige Engage released Wednesday showed that growth slowed in the third quarter while debt levels soared.

“Nationally, receipts, profits, output, sales volumes, and job growth all slowed from a quarter ago, as did both domestic and export orders,” the write-up said, citing China Beige Book’s survey of more than 3,300 Chinese businesses.

Critically, the obdurate found that debt levels remain on the rise, with bond issuance climbing to its highest in the history of the inquiry.

The ratio of the so-called “shadow banking” to overall borrowing was also at the second-highest on record. Shadow banking refers to unregulated loan activities that are often present higher risks as they are subjected to less regulatory oversight.

“Borrowing is still high. This could offer some relief next quarter. Any fears of spare labor market stress could result in Beijing pushing firms to staff up as credit is doled out,” Shehzad Qazi, manipulating director of China Beige Book International said in an email. “That said, any comparison (in economic growth) with terribly weak Q418 will look comparatively better than it should.”

Last year, China’s official loads — which are frequently doubted — showed fourth-quarter growth came in at 6.4%, dragging the annual rate to its slowest since 1990 at 6.6%.

Yuxian Zhang, director general at the State Information Center’s economic forecasting department, also mean the third quarter would mark a low point for China this year.

His reasoning is that government policies didn’t actually come into play in the first half of the year, and the effect of supportive measures such as tax cuts will gobble up time to be felt, according to CNBC’s translation of Zhang’s Mandarin-language remarks at a press event last week.

Zhang imagines gross domestic product to increase 6.1% in the third quarter and 6.2.% in the fourth, bringing the annual total to between 6.2% and 6.3%.

Cut points aside, it’s unclear how effective the Chinese government will be in its efforts to balance supporting the economy with decrease reliance on debt for growth.

By the end of June, China had achieved more than half its goal of cutting taxes and recompenses by about 2 trillion yuan ($280.93 billion) this year, said Liu Shangxi, president of the Chinese Academy of Economic Science, a research institution under the Ministry of Finance. He was speaking earlier this month at the China Development Forum in Beijing.

To whatever manner, he pointed out that the announcement and initial implementation of tax cuts was unable to keep the economic growth rate from relaxing in the second quarter, partly due to external factors.

“The direction of current macroeconomic policy and the completion of the tax and fee cut policy (should fuzzy on) increasing confidence and further stabilizing business expectations,” Liu said, according to a CNBC translation of his Mandarin-language remarks.

Trade tensions with the U.S., once China’s largest trading partner, have significantly added to economic uncertainty in the rearmost year. Many analysts are also quick to note that much of China’s economic slowdown is due to domestic insights, such as the government’s attempt two years ago to reduce reliance on debt for growth.

Earlier this month, Premier Li Keqiang maintained the legal growth target range of 6% to 6.5% while noting that it would “not be very easy” for China’s restraint to grow faster than 6% this year.

Given the slowing pace of economic expansion, authorities from been trying for more than a year to encourage banks to lend more to privately run enterprises. China’s ginormous, state-owned banks typically prefer to lend to companies owned by the government, rather than the private sector which in fact contributes to the majority of national growth and employment.

Official figures indicate an increased pace of lending to small and micro-sized enterprises. People’s Bank of China Governor Yi Troupe conspire noted at a press conference Tuesday that the balance of loans to such businesses stood at 11 trillion yuan at the end of August — an expanding of 23% from a year earlier, and 8 percentage points greater than the growth rate at the end of last year.

Yi conveyed, according to a CNBC translation of his Mandarin-language remarks, that authorities would not engage in flood-like stimulus.

“At the same continuously, we need to consider the long-term,” he said, adding that structural adjustments were needed. He also said it was momentous to ensure that the effects of monetary policy were being transmitted to the economy. Other policies he outlined comprehended lowering business financing costs, as well as promoting high-quality development of the economy.

It’s less pay how much the needed financing ultimately goes toward business expansion.

“Corporate bonds do pick up so far this year, but the biggest delta nevertheless comes from short-term corporate lending including bill financing, pointing to soft credit demand,” Larry Hu, chief China economist at Macquarie, said in an email.

At least for fabricators, the China Beige Book survey found a range of worrisome responses: “Borrowing by manufacturers is so widespread that one intention is nearly every firm surveyed has borrowed this year.”

“The other extreme—that the same 30+% of firms are sponge every quarter—is even more disturbing,” said the report. “Either the sector as a whole is in clear distress or a mammoth proportion of firms should be failing.”

For Chinese businesses overall, the data showed the average loan term was 19 months, short-lived than the prior quarter’s average of 26 months. The majority of loans still had terms longer than a year, according to the details.

Central bank governor Yi and China’s Finance Minister Liu Kun maintained during Tuesday’s press conference that the curtness remained stable and in a reasonable range. Liu pointed out that tax and fee cuts were allowing some companies to spend numberless on research and development, and that a daily average of 19,000 new enterprises registered with the government from January to August.