Fall in China credit growth puts rebound at risk

The mainland's leaders are extending a clampdown on credit, prompting analysts from JPMorgan Chase to Societe Generale to caution that the economy is vulnerable to weakening after the pickup so far this quarter.

New yuan loans were probably little changed in August, after aggregate financing, the broadest measure of credit, posted a fourth consecutive drop in July, the longest streak in 11 years. Analysts' median estimates point to the fastest industrial-output gain since December and the slowest producer-price decline in six months.

The moderation in credit after a record first-quarter financing boom stands to cap an economic rebound being driven by a recovery in confidence and Premier Li Keqiang's support measures, such as faster spending on railways. Overcapacity and pressure to clean up debt loom as challenges, according to JPMorgan, which sees growth slowing to 7.2 per cent next year from 7.6 per cent this year.

"There is less risk in the near term," said Zhu Haibin, JPMorgan chief China economist in Hong Kong. "But this round of recovery will not be a strong one and won't last long."

Analysts last month said growth was slowing to 7.3 per cent in the fourth quarter, the weakest in more than four years, after 7.5 per cent in the July-September period.