Get our own house in order

The European sovereign debt crisis has continued to rattle global markets and there are worrying signs that it is spreading to other parts of the world including Asia.

This has direct implications for Australia, as Asian demand for our resources was a major factor in cushioning the domestic economy from the full impact of the global financial crisis.

The European Union is one of China’s key export markets and analysts have been watching for signs that the debt crisis is impacting on the Chinese economy.

Recent analyses have revealed worrying signs that China’s economy may be slowing faster than anticipated.

There are concerns relating to the level of lending from China’s banks and claims that there has been a significant contraction in new loans.

Media reports suggest that approximately 10 billion yuan was written in new loans in the first two weeks of May from two of the four largest State-owned banks in China.

This compares to new loans of 1.1 trillion yuan in March and more than 680 billion yuan in April.

Clearly there is a need to be cautious, for the time frame is too short to make definitive judgements about demand for new loans in China, however if this pattern persisted it represents a worrying development.

A rapid decline in new lending could be a further drag on an economy that some analysts believe is heading towards a more significant slow down.

Another factor in the decline of new loans is a reported and parallel decline in new bank deposits.

A strategic analyst's report pointed out that the Chinese government has used loans as a vehicle for promoting economic growth and that a serious and sustained decline in demand for new loans will challenge the government to find other ways to stimulate economic activity.

Some steel mills in China have deferred shipments of iron ore, obviously reflecting a declining demand for steel.