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Uneven Credit Stalls China’s Recovery

China’s unbalanced recovery from the COVID-19 outbreak is now losing steam. Industrial production has rebounded much faster than domestic demand and household consumption. A highly uneven distribution of new credit across provinces so far this year has likely contributed to the slowing recovery. Coastal provinces are seeing eight-year highs in new credit growth, while northeastern provinces are seeing outright contractions in credit. This uneven credit distribution bodes well for more dynamic private firms in coastal areas, but also points to credit events and defaults where new lending is drying up. On balance, these developments will accelerate monetary easing as financial stress builds.

Posted August 26, 2020
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