Mainland economic activity slows
Sluggish data on real estate investments suggests that investors were jumping the gun when betting on a surging economic rebound
A shock fall in the mainland's broadest measure of credit in the economy and sluggish data for real estate investment in July flagged the risk that investors have got too optimistic too soon about the strength of a burgeoning economic rebound.
Economists say the performance will add pressure on Beijing to ease policy further to consolidate a still fragile economic rebound, while some expect growth will be sustained on fresh infrastructure investment.
"The slight growth rebound seen in the second quarter appeared short-lived, as the economy lacks momentum for sustained fast expansion," said Peng Xingyun, a senior researcher at the Chinese Academy of Social Sciences.
The Shanghai Composite Index recouped earlier losses to close 0.1 per cent higher as investors speculated on further easing steps to come. Hong Kong's benchmark share index finished at its highest in more than 31/2 years, with the Hang Seng Index ending up 0.8 per cent at 24,890.34 points, while the China Enterprises Index of the leading offshore Chinese listings in Hong Kong rose 1.2 per cent.
"If investment growth slows further with a property market downturn hitting more cities," a cut on interest rate or "a slight reduction" on overall banks' reserve requirement ratio cannot be ruled out, Peng said.
New yuan loans issued in July slumped to 385.2 billion yuan (HK$484.9 billion), which may be a temporary fall back from a peak of 1.08 trillion yuan in June, but economists say it also reflects slow industrial demand.
Total social financing tumbled to 273.1 billion yuan last month, the lowest since November 2008 and down from 1.97 trillion yuan in June.
Despite the nationwide relaxation on home purchases, property investment growth cooled to 13.7 per cent in the first seven months from 14.1 per cent in the first half. That dragged down fixed-asset investment growth to 17 per cent from 17.3 per cent over the same period.
Industrial production failed to move in tandem with strong export data last week, with growth decelerating to 9 per cent in July from 9.2 per cent in June, while retail sales growth eased to 12.2 per cent from 12.4 per cent.
In an attempt to shore up market confidence, the People's Bank of China said the slumping money data was mainly owing to seasonal factors and a high comparison base, saying its monetary stance was unchanged. Economists at banks including UBS Securities and Bank of America Merrill Lynch expected credit data to rebound soon.
State Information Centre senior researcher Zhu Baoliang said the unexpected money data may be linked to the one trillion yuan worth of pledged supplementary loans extended by PBOC to China Development Bank to support social housing construction.
Zhu said that Beijing does not need any dramatic easing amid existing policies.
Hu Yifan, head of research at Haitong Securities, said investment is set to pick up in highways, railways, airport and housing renovations. But she said financial risks may be accumulating as a peak in repayments is approaching for trust loans.