The latest industrial activity data from China suggests conditions continue to outpace expectations. This is particularly stunning against the fears generated by the SHIBOR squeeze a couple of months ago.
This strong performance should lead to many upward revisions of forecasts for 2013, particularly for steel consumption and power generation. But the resilient and robust performance of construction and infrastructure spend in 2013 may leave policy makers nervous about the mix of growth in 2014. That means while growth this year maybe a lot better than anticipated, analysts will have to think hard about the risks for next year.
Of particular interest is the rebound in credit outside the banking sector in the social finance data. Total social finance, the broadest measure of credit flows, was up 25%YoY in August after contracting in the previous two months. Bank bill financing in particular returned to inflows, while trust products were strong.
So it seems that the panic in interbank markets hasn't had much of an impact on financing outside of a short window. It also appears to have little impact on activity. Industrial production has lift, perhaps in part because of weak comps in 2012, but is nonetheless better than expected.
Power generation was also substantially stronger, rising above IP for the first time since 2009. Some of the strength is weather related, but it seems unlikely that generation growth will falter badly now the hot spell has past given the better signs in other indicators.
Steel production growth has been hugely better than expected at this time of year. Some of this has ended up as exports rather than apparent domestic demand, but with inventories of steel and raw materials low, it doesn't really matter too much.
Given activity is picking up and credit growth is still too strong, it might be the case that policy makers do change their rhetoric into the end of the year.
While this probably won't affect consumption growth this year, it may affect markets expectations for 2014.
