China's rising stability eases need for fresh stimulus
With industrial output and retail sales growing and inflation in check, data shows mainland is back on course for 7.5pc annual growth target
Investors have started scaling back their bets on the likely need for fresh policy stimulus to underpin growth on the mainland after a raft of official data signalled a further stabilising of economic activity.
The National Bureau of Statistics published figures yesterday showing that the export-oriented factory sector ran at its fastest pace of the year last month.
Industrial output was up 9.7 per cent year on year, against 8.9 per cent in June, while fixed-asset investment growth of 20.1 per cent year on year between January and July underpinned domestic activity.
Inflation remained restrained, with consumer prices up 2.7 per cent year on year last month, less than analysts had expected. Food prices were up 5 per cent, compared with 4.9 per cent in June. Vegetable prices accelerated 11.8 per cent and those for meat gained 5.9 per cent.
Retail sales growth remained comfortably in double digits, up 13.2 per cent on the same period a year ago, suggesting steady consumer spending.
Louis Kuijs, chief China economist at RBS, wrote in a note to the bank's clients: "The July data confirms our view that the government will not be forced to take major actions to stimulate short-run growth." That was echoed by Nomura chief China economist Zhang Zhiwei, whose forecasts had been growing increasingly bearish.
"We believe this data set suggests the economy is proving resilient to credit tightening and has stabilised," Zhang said. He added that the probability of GDP growth sinking below 7 per cent this year had receded, although he remained more sceptical about growth next year, forecasting a below-consensus 6.9 per cent.
The People's Bank of China said M2, the broadest measure of money supply, was up 14.5 per cent from a year ago last month, compared with growth of 14 per cent in June. Aggregate financing was 808.8 billion yuan (HK$1 trillion) last month, down from 1.04 trillion yuan in June, but new bank lending - the cornerstone of mainland monetary policy - was 699.9 billion yuan in July, exceeding analyst estimates.
Taken as a whole, the data suggests the economy is finding the traction it needs to hit the government's 7.5 per cent annual growth target. It also suggests there is sufficient slack in inflation to give room to provide policy support that might still be needed; the economy is struggling to escape its softest patch in a year and is on course to expand at the slowest pace in 23 years.
Lu Ting, an economist with the Bank of America Merrill Lynch, said the government could consider boosting investment in social housing, railways, environment-related urban infrastructure and IT if it needed to bolster economic growth.