An array of economic data for China’s economy in July
indicates a moderate slowdown in investment and production, despite the multiple
government and monetary stimuli taken at the same time. Growth of M2 was 13.5%,
lower than the corresponding period of last year. The data also demonstrated
discouraged corporate and social financing.New loans increased in July were
only ¥385.2 billion, falling
far below the expected ¥700 billion as well as
previous month’s ¥1.08 trillion. This
figure has thus become the lowest since 2009.
Sheng Songcheng, PBoC’s director of Statistics Division,instantlyclarifies
the steep fall in M2 growth as attributable to stricter regulations on
interbank lending and the decreased amount of funds outstanding for foreign
exchange. He also cited historical data, which shows July tends to be a month
of shrinking lending statistics, as well as June’s data, that may somehow
overdraw July’s lending potential.
However, the sudden fall of banking statistics ismore of an
indication of the market’s diffidence to invest, due to rising risks in
property market and credit defaults in the banking system, although these risks
are still controllable at current stage. A mismatch between demand and supply essentially
discouraged investors and banks from loans. Real estate projects are held back
because of housing market’s malperformance, which is partially due to homebuying
and mortgage restrictions. Small and micro businesses are faced with excess
capacity, and existing venturessuffer from decreasing business orders in the market
for property construction. Banks lowered risk preferences and theyhesitate to
loan out even with abundantliquidity. The biggest threat still lies in the housing
market thataccounts for one fifth of the economy, which has been experiencing
cyclical falls since the beginning of 2014.
To underpin the descending housing market, Ministry of
Housing and Urban-Rural Development has acquiesced in cancelling restrictions
on home-purchaseand mortgage for many non-mega cities. At monetary level, the
PBoC has showed full discretion in releasing expansionary forward guidance and
the speaker of PBoC pre-disclosed early statistics of August to demonstrate
economic stability. While PBoC’s targeted easing schemeto support fiscal
expansion is yet to yield concrete growth, the oriented nature of such policy
behaves as a disincentive to and crowds out the real economy, as the real cost
of borrowing remains high. If the third quarter growth rate falls below 7.6%, the
reputed economic microstimulation
would expect a transformation into moderate, or stronger, incentives. An
all-round reduction in the reserve requirement ratio, loan-to-deposit ration or
the interest rate is to be anticipated, along with an overall liberalization
for transactions in the property market.