A fall in Chinese money growth during H2 2019, especially in real terms, suggests that the economy will remain weak through H1 2020. Previous posts recommended monitoring the Cheung Kong Graduate School of Business monthly survey of private sector firms for signs of an easing in credit and monetary conditions in early 2020.

The January results were released today and are hopeful: the corporate financing index, measuring the ease of obtaining external finance, rebounded sharply from December’s 11-month low – see chart.

There are caveats. The index remains far below its level in March / April last year – those readings proved a false recovery signal. The improvement may partly reflect a knee-jerk positive response to the US-China trade truce – survey components measuring expectations for corporate sales and profits showed much larger increases last month. A possible negative effect from the Wuhan coronavirus has yet to be incorporated.

January money and credit data released in mid-February will be the next test, though could be clouded by the early lunar new year. Confirmation of an easing of monetary conditions would have limited implications for H1 economic prospects but would give grounds for optimism about H2.