BEIJING: China’s economy showed further signs of softening in July despite a burst of government stimulus measures, suggesting more policy support may be needed to keep growth on track as a property downturn worsens.
Unexpectedly weak growth in investment, retail sales and bank lending in July all pointed to growing vulnerabilities in the world’s second-largest economy.
The biggest surprise from yesterday’s data deluge came from credit and financing figures that showed the amount of cash flowing into the world’s second-largest economy tumbled to a near six-year low in July of 273.1bn yuan ($44.34bn), about one seventh of that in June.
The central bank downplayed the drop, saying that the plunge in lending was a natural pull-back after an unusual surge in June, while conceding loan demand was slowing. Analysts said the unusually large drop may also have come on the back of a crackdown on high-risk loans and commodity financing in the wake of a fraud scandal at the port of Qingdao.
But the dour news rattled some economists, who worried that the numbers signalled not only weaker loan demand in the property sector but growing caution on the part of banks to lend in general as credit risks increase.
The mood contrasted sharply with that in June, when data showed the economy appeared to be regaining traction after a weak start to the year.
“The reading on investment, the most important driver of the economy, missed market expectations again,” said Hu Yuexiao, an analyst at Shanghai Securities.
“Add to that the remarkable decline in credit growth in the corporate sector and it could suggest an end to the economic rebound (seen) in the second quarter.”
Hu said he expected authorities to further loosen monetary policy with a possible interest rate cut, whilst trying to stoke investment growth by slashing red-tape and wooing private capital.
Helped by a steady stream of government stimulus, China’s economy rebounded slightly to 7.5 percent in the second quarter — in line with the government’s full-year target — from an 18-month low of 7.4 percent in the first three months. But buffeted by a property downturn that has hurt domestic spending, the economy appears to be sputtering again. Questions about the durability of the economic recovery flared last week when surveys on the services sector showed unexpected weakness, linked largely to the housing market downturn.
Accounting for roughly 15 percent of China’s economy, the housing sector has faltered this year as prices and sales turned south, leading many analysts to warn that it poses the biggest risk to broader growth.
The data showed the slowdown may have deepened. Housing sales skidded 16.3 percent in July compared with a year ago in terms of floor space, calculations showed, a sharp increase from June’s 0.2 annual fall. New construction fell 12.8 percent in January-July as cash-strapped developers tried to clear huge inventories of unsold homes. But discounts and other sweeteners have failed to attract many buyers, who expect further price declines.