China’s rapid credit growth early this year has been interpreted as an indicator of Chinese authorities’ intent to provide support for the economy through infrastructure investment, and this reading has contributed to the rebound in global commodity prices and other risk assets over the last three months. A closer look at newly released Q1 provincial credit data, however, raises questions about that interpretation as the credit expansion is overwhelmingly concentrated within a few provinces with strong property markets. Interior provinces which would benefit from infrastructure spending are actually seeing weakening credit impulses, which suggests a more limited economic recovery, but also more positive signals for the progress of structural reform efforts. The provincial credit data are indicative of Chinese authorities’ conflicted inclinations to try to support growth and advance reform simultaneously.
