BEIJING — With construction cranes moving again all across China, from Guangzhou to Beijing, and with steel mills and concrete factories busy once more, the Chinese economy is showing signs of a debt-fueled recovery this autumn even as the United States and the European Union continue to struggle.
Industrial production, fixed-asset investment, retail sales and electricity generation all strengthened more than expected last month, continuing a trend that began in September, while inflation slowed more than expected. State-owned banks have released a torrent of loans to state-owned enterprises since May, producing a swift revival of investment spending this fall but also raising questions about the efficiency of those investments.
A raft of data came out Friday as the country’s senior officials and top military officers gathered here for the once-a-decade leadership transition at the Party Congress, prompting some skepticism overseas and in China that the data might have been manipulated for political benefit.
But while many economists and business executives say that Chinese economic data appears to have been deliberately altered over the spring and summer to hide the severity of an economic slowdown, they expressed more confidence that the economy was now on the mend.
An aging work force, overcapacity in many industries and heavy corporate debts appear to be producing a weaker recovery than in 2010, however, with little sign that the encouraging economic indicators released on Friday point to growth rates that will reach double digits again anytime soon.
“Given that they have been published while the Party Congress is in session, some skeptics have questioned whether they can be believed," Capital Economics, a London consulting firm, said in a research note. “In our view, there is solid evidence of a turnaround but not of a strong rebound."
Zhou Xiaochuan, the governor of the People’s Bank of China, the country’s central bank, said at a news conference at the Party Congress Thursday evening that the economy appeared to have turned a corner even before the strong performance in October.
“After China’s economy moderated in the second quarter, domestic policies adjusted, helping the economy to stabilize in the third quarter, especially in September," he said, predicting that the economy would continue to grow into next year.
Many worries persist about the sustainability of even a modest recovery heavily reliant on debt. Chinese banks are lending at such a brisk pace that by the end of next year they will have expanded their balance sheets in just five years by an amount equal to the combined balance sheets of the entire U.S. commercial banking system, according to Fitch Ratings. Yet China’s economy is only half the size of the U.S. economy.
Each extra dollar of lending since 2008 has produced less than half as much extra economic growth as before the global financial crisis. State-owned enterprises have finished urgent tasks like building enough steel mills to meet domestic demand and are now investing in fewer and fewer economically viable projects to sustain economic activity.
As a result, the loan burden of China’s corporate sector is soaring relative to the country’s economic output, reaching 1.9 times economic output this year, after holding steady at about 1.2 times economic output in the years before the global financial crisis.
Charlene Chu, the head of Chinese bank ratings at Fitch, predicted that such heavy Chinese lending could not continue indefinitely.
“Rising leverage either will swamp borrowers’ ability to repay, or banks’ funding and capital needs will fall short of existing resources," she said.
The Chinese economy is especially dependent on investment spending these days because exports have not resumed the rapid growth to which many companies had become accustomed. The commerce minister, Chen Deming, said at a news conference Friday afternoon at the Party Congress that China’s exports would fall short of the government’s target of around 10 percent growth this year, after rising by a little of more than 6 percent so far this year.
