CHINA’S economy saw a modest improvement in the second quarter of the year but the risks ahead look more serious, according to the quarterly China Beige Book (CBB) report. The manufacturing and retail sectors outperformed, with policy support allowing manufacturers to borrow cheaply and the retail sector seeing strong profits and sales volumes. However, the downside risks to the economy look more serious, the research firm wrote, referring to flat capital expenditure, record inventories, more shadow finance and surprise inflation pressures. “Shadow finance returned with a vengeance, rocketing to the highest proportion of overall lending in CBB’s recording history,” according to the report. That signals the borrowing cost is rising, as those lending channels always offer more expensive money than bank loans. China’s economy hit a bump in May, with the U.S. adding new tariffs to Chinese goods, industrial output growth slowing to the weakest pace since 2002 and investment decelerating. Those shocks haven’t hurt the performance of manufacturers and retailers so far — they actually outperformed this quarter — yet they are reluctant to invest, possibly due to fear of what lies ahead. “The new problem is disinterest in investment,” CBB International wrote. “Manufacturers may be anticipating a trade blow.” The report is based on 3,771 interviews conducted in China mid-May to mid-June. (SD-Agencies) |