China’s retail-sector borrowing ‘fell off a cliff’ in late 2020, with many small firms unable to access credit, report says
- China Beige Book International, a provider of independent economic data, said loan-rejection rates in the retail sector increased to 38 per cent in the year’s fourth quarter
- Report says China continues ‘to show a less robust recovery than official statistics’ indicate, as it seeks to bounce back from the economic impact of the coronavirus
Borrowing by China’s already struggling retail sector “fell off a cliff” at the end of this year, with small firms also still struggling to access credit amid a weak recovery in consumer spending, according to a new report.
In contrast, rejection rates for large firms rose marginally to 12 per cent from 10 per cent during the same period.
“Retail borrowing fell off a cliff in quarter four, due in large part to skyrocketing loan rejections. This occurred despite some of the cheapest rates [for those that could borrow] in almost a decade. SMEs are similarly getting cut out of the buffet line,” the report said.
Last week, China extended two credit-policy tools for its smallest businesses into next year, in its bid to consolidate its economic recovery and counter external changes.
But the China Beige Book analysis continues “to show a less-robust recovery than official statistics, which are in many cases being wildly inflated by downward revisions to their 2019 baselines”, according to CEO Leland Miller.
Telecommunications, shipping and financial services helped drive a recovery in services revenue, but chain restaurants and travel continued to lag behind, the report added.
“Don’t confuse the fourth quarter’s services recovery with the ‘Chinese consumer is back’ narrative,” said China Beige Book managing director Shehzad Qazi. “This is a business services – not consumer-side – recovery. Retail sector data bear this out even more clearly, with spending on non-durables sagging.”
The report also highlighted that goods prices, wages and other input costs have been rising since the second quarter, in contrast with the official measures of producer and consumer prices, both of which showed deflation in November.
The decline in China’s producer price index (PPI), reflecting the prices that factories charge wholesalers for their products, slowed to minus 1.5 per cent in November from a year earlier, compared with the 2.1 per cent fall in October.
“Official data show consumer prices first decelerating, then staying almost flat for an extended period while the economy is supposedly starting to boom. Deflation appears to be a real risk – at odds, to some extent, with growth reports.
“But all three dimensions of [China Beige Book’s] price measurement – sales prices, wages and input costs – saw the expected reversal back to inflation in quarter two and further mild acceleration in quarter three before rising again in quarter four, albeit less quickly.
“Inflation is both less worrisome than official numbers and implies a more sensible economic trajectory.”
The China Beige Book International report was based on more than 3,400 interviews with company executives and bank staff in November and December.